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Autodesk Braves Change and Continued Headwinds; Keep the fair value estimate
von Julie Bhusal Sharma | Morningstar Research Services LLC | 24-2-23
Autodesk released fourth quarter 2023 financial results that were broadly in line with our expectations. Although results fell short of full-year targets due to ongoing macroeconomic headwinds, we are impressed with the company's resilience to date and expect solid market demand to prevail over the medium term. Management's guidance was milder as it expects negative currency effects to further pressure profits and reduce overall sales as customers move from multi-year to annual contracts. We maintain our fair value estimate of $230 and see headwinds as temporary for this high quality stock. We see the stock as slightly undervalued with a minus of 3% in after-hours trading.
Fourth-quarter revenue rose 9% year over year to $1.318 billion, led by strength in the architecture, engineering and construction segment as customers seek to connect digital workflows in the cloud. Revenue rose an impressive 28% to $2.12 billion, helped in part by continued solid demand and the pending elimination of multi-year contract discounts. Autodesk plans to double the transition to annual multi-year contract terms in fiscal 2024, which will result in a revenue decline and an eventual reduction in free cash flow margin of about 41%. We view this transition as positive for Autodesk and believe that increasing customer adoption will give the company better opportunities to upsell. With the company's excellent net income retention rate ranging from 100% to 110%, we see little impediment to long-term success.
Despite the headwinds, Autodesk reported solid profitability with a non-GAAP operating margin of 36%, up 100 basis points year over year. Non-GAAP EPS was $1.86, just above management's guidance of $1.77 to $1.83.
Increase in booking demand in 2023 as platform improvements continue to strengthen the network
by Dan Wasiolek | Morningstar Research Services LLC | 24-2-23
We do not intend to significantly change Booking's fair value estimate of $3,050 as stronger near-term revenue growth is offset by higher spending in our 10-year guidance. We reiterate that the Booking network (source of its narrow moat) is strengthening and that the shares offer investors an attractive entry point.
The company continues to see strong demand with bookings of $27.3 billion in the fourth quarter, ahead of our prepress forecast of $25.5 billion. Bookings represented 44% year-over-year growth (58% at constant currencies), or 132% of 2019 levels, versus 127% last quarter. We believe Booking continues to benefit from prudent improvements to the platform, such as adding flights to more countries to its network (fare growth was 62% in the quarter) and adding payment features, which accounted for 45% of reservations processed versus 30% each Year. a year ago. Additionally, we believe the core lodging business continues to perform well, evidenced by a 40% growth in room rates, reaching 110% of 2019 levels, versus 108% in the last quarter. Overall, the network is resonating with users based on the increase in direct traffic mix compared to last year and compared to 2019 (unquantified). As a result, Booking expects further demand growth in 2023, and we expect to raise our revenue guidance to around 15% from a 12% increase last year.
Operating margins (excluding the restructuring benefit) were 28.7%, beating our estimate of 28% and 22.9% last year, respectively, due in part to lower than expected marketing spend. We still expect margins to increase to around 30% in 2023, but we plan to reduce our number from previously 37% to around 36% by the end of the decade, or roughly back to 2019 levels, but we're coming We decide to follow management's comments that margins will remain below 2019 levels, in part due to a mix shift towards flights and payments and investments in merchandising.
We like eBay's turnaround narrative, but weak margin guidance justifies a negative earnings reaction
von Sean Dunlop, CFA | Morningstar Research Services LLC | 23-02-23
Narrow-ditch Ebay reported solid fourth-quarter results with revenue of $2.51 billion and adjusted earnings per share of $1.07, beating our estimates of $2.45 billion and 1 surpassed $.03. in after-hours trading. We consider the market reaction reasonable and expect to reduce our own fair value estimate of $60 by a mid-single-digit percentage as we process the results.
Specifically, management has revealed a desire to invest in the launch of an international remittance program, which we have little expectation of paying off in the short term. While we recognize the benefits of reducing churn for buyers - with similar programs underpinning strong GMV growth moves at other online retailers - given a challenging economic backdrop and medium-term international sales growth, the timing of the investment strikes us as curious, seems inadequate around offset the gross margin of approximately 120 basis points that the company expects for the program. Coupled with a 1% decline in notional sales, acquisition costs, and targeted investments in focused categories, we expect to cut our 2023 adjusted EPS guidance for the year by nearly a fifth -- from $4.20 to $3.45.
On a positive note, the company's focus category strategy continues to bear fruit, with these industries outperforming the rest of the market by 7 percentage points versus 5 in the previous quarter. In our view, the company's recent wave of acquisitions appears to support its emphasis on core categories and the 16 million avid buyers (representing 70% of platform spend) that the strategy serves, which we think bodes well for the continued trend reversal in the core market. To that end, since the comparable pre-pandemic period, the U.S. market has seen annualized platform sales growth of 3.8%, a healthy 0.9% increase between 2015 and 2019, data we believe to have come from the The company's struggles abroad are overshadowed.
Netflix is quietly cutting prices in over 100 markets; Driven by strong dollar and price competition
von Neil Macker, CFA | Morningstar Research Services LLC | 23-02-23
Effective February 23, Netflix has reduced prices in more than 100 countries and territories, according to Ampere Analysis. The magnitude of the price drop varied by market as well as by plan, with the base plan seeing the largest drops, from 20% to nearly 60%. The affected areas are spread all over the world and are mostly emerging countries. However, Netflix hasn't made any changes in some of the biggest emerging markets like India, Brazil, and Mexico. We're sticking to our fair value estimate of $315 because we've long believed that Netflix would need to lower prices outside of the US and Western Europe to remain competitive.
Most countries with now lower prices do not have localized prices but instead have prices in US dollars - Ampere only identified 10 markets with prices in local currency (Ecuador, Croatia, Egypt, Kenya, Morocco, Indonesia, Thailand, Malaysia, Philippines and Vietnam) . . As such, we view most price changes as an attempt to offset the impact of the strong dollar.
We also believe that the current or expected level of competition from much cheaper services has played an important role in these changes - and probably the dominant role in local pricing markets. For example, Disney+ Hotstar serves three out of five Asian countries at local prices, and the service is expected to launch in a fourth (Vietnam) this year. The Philippines, the fifth, is served by Disney+.
Even compared to the reduced price, Disney platforms still have a significant price advantage. In Indonesia, Hotstar costs IDR 39,000 per month or IDR 199,000 annually, compared to Netflix's updated monthly price of IDR 65,000 (Basic), IDR 120,000 (Standard), IDR 186,000 (Premium) and IDR 54,000 (Mobile). The much more limited Netflix mobile plan costs 38% more than the Hotstar monthly plan. While the lowered prices will help improve Netflix's competitiveness, the company may have to cut prices again if Disney continues to keep its prices aggressively low.
Solid growth and margin growth is expected to continue at WPP into 2023; undervalued stock
von Ali Mogharabi | Morningstar Research Services LLC | 24-2-23
WPP finished another strong year, and while the stock is up 28% year-to-date, we believe it remains the most attractive of the big advertising holdings, trading at just 0.78 times our estimated value with a dividend yield of 3.8% becomes. . While adspend could fall due to a possible economic slowdown in the first half of this year, we believe the company can meet its guidance for organic growth and adjusted margin expansion for 2023. Recent client wins, differentiation on the creative front, investments in technology and data analytics, and a reorganization that streamlined operations position WPP well to accelerate revenue growth and build operational leverage.
Fourth-quarter net income grew 6.4% organically year over year. The large markets of North America and Europe performed well with organic growth of 3.5% in the US, 12% in the UK and 4.9% in Germany. In China, weakness continued as organic net income fell 8.4%; with the country relaxing COVID-19 guidelines, we expect some improvement later this year. Demand for media and creativity remained strong, driving 6.6% organic revenue growth for the global integrated agencies segment in the fourth quarter. The public relations and specialist agencies segments also recorded organic growth of 6.5% and 4.4%, respectively.
WPP's net account earnings in 2022 represented gross ad spend of nearly $6 billion, boding well for growth in 2023. However, while the company gained big accounts like Verizon and held onto Sony PlayStation and Mars Wrigley, it also lost sizeable accounts like L'Oreal and Pepsi (likely due to Coca-Cola's big global win in 2021).
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