Autodesk reported revenue for Q4 fiscal year 2016 from its Media and Entertainment (M&E) business segment of $40 million, a decrease of 7% compared to the fourth quarter of the 2015 fiscal year, and a 2.5% increase against the previous quarter. The year-over-year decline was primarily related to a decline in the M&E business’s Creative Finishing product lines, as Autodesk existed the Creative Finishing hardware business during Q4 FY 2016.
M&E gross margins for the fourth quarter were 80.0% ($32m), down from 79.1% during the same period a year ago, and up from 79.4% during the previous quarter.
Full Year 2016 M&E Revenue Declines 4.2%
Media & Entertainment revenue for the full FY 2016 was $160 million, down 4.2% versus the FY 2015.
M&E gross margins for the full year 2016 were 79.4%, up from 76% in FY 2015.
Decline in M&E Revenue Continues
As shown below, the latest year-on-year decline in M&E revenue continues the trend that began more than six years ago.
Between fiscal 2008 and fiscal 2016, the company’s M&E business has a CAGR of -5.8%. During this same time, M&E sales as a percentage of total Autodesk revenue has declined from 12% to 6%.
The decline is consistent with the guidance from Autodesk management. Revenue headwinds impacting the M&E business have included the shift from hardware to software, the collapsing of functionality into Suites, and the shift from software licenses to subscription.
Update on Business Model Transition
As part of the earnings release, Autodesk provided several updates on the Company’s ongoing transition to a Software-as-a-Service (“SaaS”) business model. Notably, the total subscriptions (for all Autodesk products) increased by 345,000 to 2.58 million during fiscal year 2016.
The close of the fourth quarter of fiscal 2016 also marked a milestone for Autodesk’s transition to a SaaS business model. It was the final quarter where Autodesk sold perpetual licenses for individual products. Q1 FY 2017 is the first quarter where individual products are only available through subscription offerings. Starting with Q3 FY 2017 Autodesk will cease selling perpetual licenses to its Suite products as well. Meaning, as of the second half of 2017, Autodesk will have fully transitioned to selling subscription offerings.
During Autodesk’s conference call with analysts, CEO Carl Bass added further commentary on the business model transition. “…we are dramatically increasing the lifetime value of our customers with our new business model. While this creates short-term downward pressure on our traditional financial metrics, we have repeatedly called out how it creates significant financial returns over the next 3 to 5 years” said Bass.
Part of the business model transition also requires realignment of costs structures to a new sales and marketing approach. Autodesk had announced in early February 2016 a restructuring plan to accelerate its transition to a Cloud and Subscription Business. The restructuring plan called for the reduction of 10% of Autodesk’s workforce.
Commenting on the changes to sales and marketing, Carl Bass offered the following, “we are simplifying our entire go-to-market strategy to align with the concept of being an all-subscription company. This involves a significant increase in our direct customer sales and marketing efforts, both at the enterprise level and through e-commerce. Not only will this change the cost structure, but it will increase — it will greatly increase how effectively we serve our customers.”
Press Release: Autodesk Reports Fourth Quarter Financial Results
Press Release: Autodesk Announces Restructuring Plan to Accelerate Transition to Cloud and Subscription Business
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