News and analysis

Autodesk is mostly associated with industrial design. The company has been developing industrial design solutions for many years. Professional schools are educating students on Autodesk software products. The company has successfully adopted to the modern realities and introduced the subscription payment business model. This move has made its services readily available. It has become accessible to those who would not allow for one-time license fees for a long period of time.

The demand for the company’s products is sustainable, business margins are improving, while net cash flows allow for the buy-back of its own shares. The company conducted a $464 million buy-back in the financial Q1 2022. This is certainly not enough for stock prices to grow at the same pace as its younger peers. This is more a value stock that may help to survive in turbulent times. The return to $250 per share is expected, but no super profit should be considered.

The company’s revenues grew 18% year-on year to $1.17 billion for the Q1 2022. The major business segment Architecture, Engineering, and Construction that is responsible for 45% of the total revenues has reported that it signed its second largest ever enterprise agreement with an infrastructure company. A new product Bridge has been launched targeting the subcontractor audience. The suspension of the company’s operations in Russia would cost $115 million per year, but it has caused minor damage to the company as it has almost $5 billion annual revenues.

The operational margin grew to 34%, and operational profit went up by 42% year-on-year to $397 million in the Q1 2022. Free cash flows rose by 34% year-on-year to $422 million.

HPQ stocks have lost 15% since the beginning of 2022, much better that younger and popular tech companies that lost 40-50% over the same period. More interesting, this year became the first in the company’s history when its stock yield outperformed its peers. The most attractive for HP is its financial performance as its forward P/E ratio was at 8.6, which is much better than other companies . Shareholders are getting regular dividends with the annual dividend yield at 2.7%. So, why are HP stock prices dropping?

The main generator of money is the personal computer business. The sales of personal computers dropped by 17% year-on-year in the Q2 2022. However, the revenue from this segment rose by 9% year-on-year to $11.5 billion thanks to cutting costs and rising retail prices on personal computers. Corporates are buying more computers and boosting the demand by 18% year-on-year, while sales to individuals dropped by 6%.

Printers are responsible only for one third of the company’s revenues and 50% of its profit. This segment has been contracting for some years and the last quarter was not an exclusion as revenues dropped by 7% year-on-year to $5 billion. This drop may continue as more companies are no longer conducting their business practices on paper. Moreover, public presentations are getting more digital as they are delivered and distributed online. This is worrying considering the high margin of the segment.

HP stocks may not perform to the upside aggressively as they are more appropriate to shelter turbulent times. HP operational profit is almost the same compared to Q2 2021 - $1.444 billion compared to $1.443 billion, while the operational margin is down to 8.8% compared to 9.1% last year as printer sales are dropping. The company continues its buyback operations in Q2 2022 when it spent around $1 billion to purchase 27.4 million of its own stocks. These efforts cannot last long considering rising stock prices and declining profits. Thus, HP stocks are unlikely to beat peaks reached at the beginning of this year.

Oracle is one of the important players in the technology sector. Its shares have lost 25% since the beginning of 2022. Its business is much more stable and cannot grow by double digits as some other younger peers in the sector. However, the company’s efforts towards developing cloud-based solutions are strong and stable financial results are prompting elevated demand for ORCL stocks as a safe haven asset.

The company has a diversified product portfolio from software to the management of financial activities, sales, and supply chains to infrastructure solutions like Oracle Autonomous Database. The company is on its way to transforming its business model to cloud-based solutions on the subscription basis.

The financial Q4 2022 that ended May 31 showed that cloud segment revenues rose by 19% year-on-year to $2.9 billion. Some businesses have performed even better. Fusion Cloud posted revenues up by 20% as the company is taking over in the health information technology sphere beating its peers like Kronos, Workday and SAP. Management is pushing up the development of the data management system MySQL that  processes transactions seven times faster than same solution AWS Aurora from Amazon.

Oracle corporation management is expecting 2022 operational margin at 45-46%, that is very much above other software corporations and most importantly above the prepandemic level of Oracle itself when the operational margin reached 44%. The company pays regular dividends. It has also launched a buyback program to get its shares back at discount prices now. During the last four quarters Oracle has spent more than $16 billion for buybacks and may continue to spend money on this as its stock prices are going down.

The mid-term target price for ORCL stock at $78 is intact.

SAP stocks have lost 30% since the beginning of 2022. The German tech company develops enterprise software and solutions to manage business operations. For example, one of its services can be used  to manage all business travel financial activities and related spending. In other words, it is quite a routine company with  a stable and strong cash flow. Once SAP software is installed on a corporate level it is hard to do without it as it is deeply integrated into the business core processes. Moreover, SAP is restructuring its business model around its subscription base and this will allow for cash flows to be even more predictable and balanced through the financial year. Such a model is in favourable to Wall Streel investors.

The war in Ukraine has a 300-million-euro negative effect on SAP business, and it is only a marginal 1% of the overall revenue base for the company, while its dominance in the ERP segment is secure. The revenues added 11% year-on-year to 7.08 euros in Q1 2022. The revenues grew by 6% in  Q4 2021.

The company has made some successful M&A deals, acquiring Qualtrics, a cloud-based subscription software platform, that delivered +48% revenue in Q1 2022. This company had a gross margin above 90% in 2021 while SAP’s gross margin was at 70% for the same year.

SAP management promised to triple its cloud-based business by 2025, and boost revenues to 22 billion euros, while operational profit is forecasted to grow by 40% from the current 8.4 billion euros. This is a very extensive growth for the company that has a high P/E ratio at 17. The company may not perform very high growth rates as its younger tech sector peers, but it may certainly recover to new all-time highs in the long-term perspective. However, the sector may require several quarters to recover, and the recovery would be headed by such reliable companies as SAP with a low risk profile.