Last Q4 Update: ADSK, SNPS, SPT, ADBE

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At last, we can finally wrap up with Q4 updates - just in time for the Q1 reports to start rolling in! Oh well, it keeps things exciting, right? Today I’ll cover reports from Autodesk, Synopsys, Sprout Social, and Adobe. There were no surprises here so I’ll keep this pretty brief.


Autodesk (ADSK)

Autodesk’s revenue increased 11% in Q4 to $1.47 billion, with recurring revenue 98% of the total. Management related that the company is continuing to stay in the lead on 3D generative AI for design, which (in my opinion) could be come a very common early use case for the technology. Revenue retention was within a range of 100-110%. I was a little disappointed with the dwindling free cash generation, both for the year and 2024 guidance. Nevertheless, Autodesk’s fair value still gets a small bump from $280 up to $284.


Synopsys (SNPS)

Chip design software provider Synopsys concluded a strong year with 21% revenue growth in the 4th quarter. The semiconductor industry is once again entering an up phase, driven by demand for AI hardware. Synopsys, as one of the "big two" EDA vendors, is poised to benefit. However, I think there is way too much speculative investment right now, driving the stock price way past the fundamentals. I’m raising the fair value up to $328 (from $321), but the stock currently trades over 80% above that price. We will leave it on the Watch List.


Sprout Social (SPT)

Sprout, which makes a popular social media management platform, continues to put out good results. Sales were up 34%, accelerating from its full year rate of 31%. Annual recurring revenue was up 30%, and backlog an impressive 69%. Disappointingly (to me), the firm still is burning a lot of cash, coming in barely positive on the free cash side for the year. A lot of my modeling is built off of their "20-22% free cash margin" guidance by 2028, so this is a key risk. Still, social media continues to out-grow almost all other forms of advertising and is clearly a key engagement channel for any business. Sprout is attractive, but again, not unknown, and continues to trade well above the new fair value number of $36 (up from $33).


Adobe (ADBE)

Adobe delivered an on-target Q4, with revenue up 11%. Here’s another firm with a realistic AI use case, using the technology for things like photo enhancement, or creating images from textual descriptions. The company dominates its field and is quite predictable from a sales and cash flow perspective. However, the Figma deal was canceled back in December and Adobe had to pay a $1 billion breakup fee. This hurt the balance sheet enough to trigger a fair value cut from $604 down to $595. As usual, though, the market overreacted, sending shares down close to 15% and presenting a reasonably good buying opportunity into this great company.


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Disclaimer: The content is provided for informational purposes only. The material should not be considered as investment advice or used as the basis for stock trades. Content should not be ...

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