(News Bulletin 247) – The CAD/CAM software specialist posted a 10% drop in licensing revenue in the first quarter, due to significant volatility in the Asian country.

Sometimes reassuring, sometimes disappointing, the publications follow each other and are decidedly not alike for Dassault Systèmes. The specialist in computer-aided design and manufacturing (CAD/CAM) software, such as Catia and Solidworks, had published excellent results for the end of 2022, in particular on its license sales.

The steam reversed at the start of 2023. Over the first three months of the year, Dassault Systèmes saw its turnover increase by 7% excluding currency effects over one year, to 1.43 billion euros. euros

. Its operating margin contracted by 4 percentage points, from 35% to 31%. Earnings per share rose 1% to 28 cents, while cash generation reached a record 783 million euros, up 23%.

Both the revenue and the margin posted by the company turn out to be very close to (but slightly lower than) analysts’ expectations.

Licensing and the cloud disappoint

But on a growth stock like Dassault Systèmes, the market often focuses on the engines it considers the most important. In particular, license sales, which are of some importance because they then turn into recurring revenue for the company.

Revenue from these sales fell 10% in the first quarter, weighed down in particular by China, where Dassault Systèmes explains that it had to face “a more volatile environment than expected”. This fall is higher than the company anticipated since Dassault Systèmes had indicated that it was expecting a drop of between 2% and 7%.

Another element, pointed out by both UBS and Stifel, is the marked slowdown in the growth of revenues from the cloud, that is to say services related to cloud computing. In the first quarter, these activities increased by 17% over the first three months of the year, a marked slowdown compared to the 22% increase in the fourth quarter of 2022.

“Weak licensing and slowing cloud growth are weighing on the stock price,” said UBS. On the Paris Bourse, the Dassault Systèmes share plunged, losing 7.4% around 11:20 a.m., which constituted the second largest drop in the CAC 40.

A valuation that lends itself to debate

“Without being catastrophic, this publication for the first quarter of 2023 comes out slightly below expectations and the objectives for the second quarter are cautious, without calling into question the 2023 objectives”, comments Invest Securities.

For the second quarter, Dassault Systèmes anticipates growth excluding currency effects of between 7% and 9%, with license sales between 0% and 5%. The operating margin is expected between 30% and 30.5% while net earnings per share would be between 27 and 28 cents.

The group confirmed its annual forecasts, namely growth at constant exchange rates of between 8% and 9%, a margin of 32.3% to 32.6% and net earnings per share between 1.18 and 1. ,20 euro.

The sanction of the market on Wednesday is a reminder that investors have little leniency for growth stocks with high valuation multiples, which is the case for Dassault Systèmes according to some research departments.

“While valuation remains a stumbling block for some investors, particularly in an environment of rising interest rates, we believe that the reference to past multiples makes little sense since the group has expanded its addressable market and rebalanced its outlets. According to the group, it deserves us a premium compared to its peers in terms of its status as a leader and innovator in a non-mature market, its share of recurring revenue (70% of consolidated revenue), its contribution to digitalization at forced march of manufacturing, the quality of its proposals, its levels of profitability”, nevertheless judges Sarah Thirion, of TP ICAP Midcap.