Updates for Autodesk, Zscaler, and Workday

Q3 reports are slowing down to a trickle, but there are still a few more followed stocks reporting. In this article, we'll take a brief look at earnings from Autodesk, Zscaler, and Workday.

Autodesk (ADSK)

Autodesk is a steady, reliable performer, and that was again the case for the third quarter of 2023. Revenue grew 10% year-over-year (13% when adjusting for currency), and backlog was up 12%. 98% of sales were on a recurring basis. It was the company's second straight quarter of weak free cash flows, but this was expected as they transition to annual billing instead of receiving cash for multi-year subscriptions upfront. Net revenue retention remained in a "range of 100 to 110 percent".

The company provided preliminary guidance for 2024 that was a bit below our modeling, but not substantially so. After incorporating results and guidance, it looks prudent to pull back on the fair value price slightly, from $289 down to $280. Still, the stock looks attractively priced, selling just above the 25% margin of safety we like to see before buying.

Zscaler (ZS)

Another good quarter for our top performer, which is now up over 110% since recommended back in April. Revenue grew 40% year-over-year, and deferred revenue was up 39%. The company's Zero Trust platform continues to be ever more relevant as more and more enterprises move to off-prem (cloud) solutions for more and more software. When it comes to cloud security and firewall, Zscaler is the top name in the industry. Cash flow margins crossed 30% this quarter, which is well above my modeling. Still, I'm only making a slight adjustment in the fair value price at this time, bumping it up to $155 from a previous $152. Zscaler is trading almost 30% above that at present, making the stock a hold but not a buy right now.

Workday (WDAY)

Human capital and financial software provider Workday had another steady, predictable report. Revenues grew 17%, with subscriptions making up 90% of the total. Forward metrics also continued to be strong, with subscription backlog up 22%. Workday noted good momentum, powered by rolling out their AI capabilities, an increase in full platform deals, and international growth. As management noted (and we called out in the initial review), Workday's platform manages perhaps a businesses two most valuable assets - its people and its cash.

Workday slightly raised revenue guidance for 2023, but everything else was right on our modeling. The fair value estimate gets a small bump to $220 from a previous $218. The stock looks a bit pricey right now, so this one stays on the Watch List.