Dassault Systemes Earnings: In Line Results as China Sees Pick Up and Medidata Sees Hard Comparison

Dassault Systèmes DSY reported in line second-quarter results, as high tech drove much of the Americas results, there was a rebound in China, and consumer packaged goods aided European sales. We continue to view shares as fairly valued, as we reconfirm our EUR 37 fair value estimate for the wide-moat company after management reiterated its annual outlook. While we question some of Dassault’s product decisions, like the closed system design of its 3DExperience platform, we continue to believe the company remains well positioned to benefit from the healthily growing CAD and PLM market, which we believe will hit $52 billion by 2032, indicating an 8.4% 10-year CAGR. Even within the growing market, we think Dassault will be able to expand its market share by about 2.5 points over the next 10 years to 31% (reflecting more expansion than Autodesk and PTC, due to Dassault’s wider scope). Altogether, we believe that CAD and PLM vendor consolidation will occur as customers migrate to cloud solutions, aiding the largest players in this market, like Dassault.

Second-quarter revenue increased by 8% year over year, in constant currency, to EUR 1.45 billion, in line with management’s outlook. Total software revenue also rose by 8% year over year, in constant currency, thanks to broad-based geo growth—particularly within China, where mainstream innovation software revenue (which includes Solidworks) grew by 25% year over year. On the flip side, Medidata has been suffering from more moderate subscription revenue growth due to difficult comparisons from strong post-COVID-19 study activity. Nonetheless, Dassault is expecting to return to double-digit Medidata growth by the end of the year.

Dassault’s non-IFRS operating margin for the quarter was 31%, down 1 point year over year but above the high end of guidance. Non-IFRS earnings per share in the quarter was EUR 0.28, up 15% in constant currency year over year and in line with management’s guidance.