The Altium Limited (ASX: ALU) share price has come under pressure for a second day in a row.
In morning trade, the electronic design software company’s shares are down 3% to $27.59.
Why is the Altium share price under pressure?
On Tuesday the Altium share price tumbled lower following the release of a note out of Citi.
Although the broker remains positive and has held firm with its buy rating, it suggested the company could fall short of expectations in FY 2021.
This follows some heavy discounting, which it fears could be a sign of weak market conditions.
Why is it dropping further today?
It hasn’t taken long for another broker to pick up on this discounting.
This morning Bell Potter responded to the news by downgrading the company’s shares to a sell rating and cutting the price target on them by 3.5% to $27.50.
However, based on the current Altium share price, this implies only modest downside from where it trades now.
What did Bell Potter say?
Bell Potter commented: “Altium is discounting the price of a term licence for its Altium Designer (AD) software by 50% in the first year. At this stage the offer is valued for two months – till 18th June – and is limited to two licenses per customer at this price. The price for a perpetual licence, however, appears to be unchanged and, for instance, in Australia remains A$11, 590 (A$9,495 for the licence and A$2,045 for the one year subscription).”
“The discounting of just the term licence differs from around this time last when the company was aggressively discounting the price of a perpetual licence by around 40%. The discounting suggests Altium is pursuing subscriber growth before the end of the financial year – both in new AD seats sold and 365 users – though this will have negative short term impact on revenue. The impact is also likely to be accentuated as it will further incentivise new customers to buy a term rather than perpetual licence,” it added.
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Altium. The Motley Fool Australia owns shares of Altium. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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