Alteryx

An hour and a half after Alteryx reported their results, in the middle of the call, I decided I needed to post on the board in the middle of the conference call and alert you to what I was hearing: That, if the tone of voice and what the CEO and CFO were saying was true, Alteryx was fine, and don’t sell out of your positions!

Most people listened, but a lot of the same people who always find fault with what I write, and with our companies, found little carping details to worry about and argue with.

Well, Alteryx closed a week ago, last Friday, at $105.75, and it got as low as $105.00 in the aftermarket after earnings. Right now, two days after the earnings report, at the close, after being as high as $131.30, Alteryx closed at $130.65, up $25 in a week from last weeks close, and up $25 in two days from the premarket low.

I hope that you were one of the ones who kept their positions.

Best,

Saul

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I stayed in my positions!

Kicking myself I didn’t add just a little more when it got down to around $111 yesterday, but this is already my biggest holding. lol.

Thanks Saul!

I appreciated what you wrote very much Saul - and that you were doing it in ‘real time’ - and added a bit even though it’s my largest holding. Thank you,

John

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Saul I have many ideas about investing. But I have made only one rule! About 2 years ago I wrote to myself, NEVER SELL AYX! Unless of course the investment thesis changes materially. But otherwise NEVER! I have never regretted that rule.
Tim

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On the Tinker forum been focusing on process and when to sell and why. Why? Well, SHOP, not long ago fell into the $90s based upon a popular report from a professional short (and before that was considered outrageously expensive and a loser when in the $20s). I learned that MELI is up 45x since 2009 or thereabouts. Alteryx has fallen many times, but those who didn’t sell are up many multiples. And much things like this. How so much effort and fuss goes into fretting and over thinking, because we think we are so smart. And yet, what is smarter, fretting and churning and running in and out of AYX, SHOP, or hey, great example for me, Vertex (in at $13, I don’t know, sold around $39 or $52 or something) now at $286. Wonderful!!! How brilliant of me ;(.

Gee, and yet, with all that frenzy, ones wealth would be a lot greater if one would just have stopped fretting.

So as to AYX, which to add to Saul not only recently hit $105, it also recently fell to $75 (just last month) why would one want to sell Alteryx given the information from the conference call?

Any new competition? Any decrease in the size of the market? Any change in how people will make value out of data? Oh, I know the reason, Alteryx is not a Work From Home (WFH) stock.

So the question is, other than AYX not being a WFH business, and the economy being in its pandemic induced state, is there any reason to sell AYX (given the context of some of the companies expressed above)?

Tinker

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So as to AYX, which to add to Saul not only recently hit $105, it also recently fell to $75 (just last month) why would one want to sell Alteryx given the information from the conference call?

Any new competition? Any decrease in the size of the market? Any change in how people will make value out of data? Oh, I know the reason, Alteryx is not a Work From Home (WFH) stock.

So the question is, other than AYX not being a WFH business, and the economy being in its pandemic induced state, is there any reason to sell AYX (given the context of some of the companies expressed above)?

Assuming that these aren’t just rhetorical questions, the main reason to sell Alteryx is that it’s going from a 75% YOY growth rate in Q4, to a 43% YOY growth rate in Q1 (when Q1 was mostly a normal quarter in the USA), to a forecast 12.5% YOY growth rate in Q2. That’s a noteworthy slowdown in a business that I think was among the most reliable growers on this board.

In a way, it reminds me of the fall in ZScalar, where the conference calls were so positive, while the growth rate tumbled. At that point, people were confused about whether to believe the calls or the numbers. In contrast, this time, the board seems to have no doubt that the numbers should be ignored in favor of the conference call.

Also, I think it’s a bit strange to exclude “the economy being in a pandemic-induced state” because that’s clearly the economic story of this year, potentially impacting every stock in dramatic positive or negative ways. If you’re analysing a almost any business, the most important moving part today is likely to be the effect of the pandemic on any company and its customers. For instance, I think it does decrease the size of the market for a year or two, and the degree to which businesses prioritize data analysis.

After a few years, I wonder if the pandemic actually grows the size of AYX’s market as large- and medium-size businesses become increasingly dominant after the failure of less-robust businesses.

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Assuming that these aren’t just rhetorical questions, the main reason to sell Alteryx is that it’s going from a 75% YOY growth rate in Q4, to a 43% YOY growth rate in Q1 (when Q1 was mostly a normal quarter in the USA), to a forecast 12.5% YOY growth rate in Q2. That’s a noteworthy slowdown in a business that I think was among the most reliable growers on this board.

In a way, it reminds me of the fall in ZScalar, where the conference calls were so positive, while the growth rate tumbled. At that point, people were confused about whether to believe the calls or the numbers. In contrast, this time, the board seems to have no doubt that the numbers should be ignored in favor of the conference call.

There’s a few things about this. I don’t think AYX is anything like ZS. ZS started running into problems in a perfectly fine economy. ZS Clearly has company-specific issues. It’s like taking any restaurant out there that reports their revenue slowed dramatically this quarter and saying “this reminds me of ZScaler.” When restaurants were forced to close or at the very least there was a significant disruption in business, something that was not going on when ZS slowed down.

I’m not saying any of this to defend holding AYX or be confrontational toward anyone who says AYX should be sold. I bring this up to ask what the viable alternative is.

Sell AYX and buy what? Or just go into cash?

The reason I ask this question is because it seems to me selling companies that would be impacted by an economic slowdown and would benefit from remote working is sort of like buying stock in a waterpark that had a great summer season due to unseasonably warm summer months, when winter is right around the corner.

I don’t have any doubt that AYX will have a bad Q2. But I just looked, and AYX stock is actually higher now than it was when it reported earnings. So the market full well knows next quarter will be 10% YOY growth but still thinks the stock is worth more than it was before it announced that fact.

I’m not hearing any good solution from those that say AYX should be sold.

And in my opinion, I think people should be separating company specific issues from macro issues that would cause a slowdown.

I haven’t heard any solutions by people who said AYX should be sold, but I can only imagine the solution would be to buy remote working stocks, during a time states are opening back up.

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rbgibbons,

I am taking a quote from your previous post.

Saul is typically ruthless in pruning companies when their growth slows, and here the slowdown in growth is extremely foreseeable. So, should we really expect the stock to hold up well when it’s pretty obvious that Alteryx’s growth is about to hit a brick wall?

(I’m curious if Saul will give Alteryx an “extraordinary circumstances” pass in the next few months when its growth plummets.)

The portion in bold that I highlighted is one of the problems I am having with all this. If it’s obvious that Alteryx’s growth is about to hit a brick wall, isn’t it obvious to everyone else as well? Which is why the stock is actually higher now than when it reported said brick wall. Buy the rumor sell the news type thing. Or John M Keynes’ Beauty Pageant parable. It just seems real easy to stay one step behind everything when one is positioning their portfolio around what would and would not benefit from social distancing. Especially during a time when states are opening back up.

The reason I bring this up is because I have not heard the full strategy of what to do when this is one’s approach. Sell everything that would be affected by social distancing. OK. What would the next step be?

My only guess if this is one’s approach is it would be to sell AYX and buy ZM and other remote working stocks.

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So the market full well knows next quarter will be 10% YOY growth but still thinks the stock is worth more than it was before it announced that fact.

AYX is one of the very few companies dare to provide Q2 forecast even though it is a “significant slowdown” and AYX being a relatively non-WFH stock - this to me implies the confidence from the management.

Zoro

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Can someone please tell me how to find the current Alteryx board? I’ve tried every search I can find and they all lead me to the (old?) “Stocks A to Z” Alteryx board which hasn’t had a post since mid-2019. I’m certain there must be a board with newer posts than that. I am a member of Stock Advisor and Rule Breaker.

This is a continuous, ongoing problem every time I try to find a board for a company of interest.

Thanks…

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Go to a Premium Board. Look at the lists of posts. click on one scroll to the footer on the page. There is a search box for ticker. Enter AYX. Press “Find” in lower right. It takes you here: https://discussion.fool.com/4056/-alteryx-ayx-121846.aspx

Or, go to my.fool.com and use the search at top left in the black band. Enter AYX and wait for the dropdown to fill. Click on Alteryx to get to the premium ticker page instead of (seach results). scroll to the bottom of the entire page and there’s a bunch of big tiles; one is the link to discussion boards.

-Another Rob

Actually after testing it looks like they’ve updated the boards search function on the boards list pages. If it says “Motley Fool Premium” in the upper left corner (graphic logo, not text) the search will find premium boards, too.

Go to a Premium Board. Look at the lists of posts. click on one scroll
to the footer on the page. There is a search box for ticker. Enter AYX.

Thanks, Rob. That worked. It does seem like a kind of a roundabout way to do a search, kinda like going around the block to get around the corner, but it works…

The searching is localized inside the premium domain, I think?

I know I usually wait until the end of the month, but I just finished my initial AYX thoughts. I’ll represent the other side of the coin, although maybe I’ve just stood the coin on its edge since I’ve lightened up rather than sold.

As usual, I’m 100% open to being shown any flaws in my thinking.

AYX – Alteryx had a much-awaited earnings release on 5/6. As with most firms reporting in May there was considerable speculation about the effects of COVID-19 on AYX’s business. Most of the concern centered around Alteryx’s position as more of an on-prem product than true cloud offering. While no one doubts the importance and inevitability of data analytics, there was legitimate uncertainty with regard to how well AYX’s products would translate in the work from home world.

It turns out Alteryx isn’t immune to COVID-19. Revenues came in at $108.8M and 43.2% growth. Despite being at the top of the guided range, that is by far the smallest growth AYX has posted in the 15 quarters of data I have on the company. It was also their smallest beat by a significant margin in both dollar amount ($0.83M) and percentage terms (0.8%). For a company with a reputation as serial sandbaggers on guidance, it is hard to call this anything but a mild disappointment.

The secondary numbers weren’t terrible but also not what we’re used to. In fact, I’d call it a mixed bag. On one hand, AYX generated $20M in operating cash flow and posted its usual stellar 91% gross margins. On the other, the company saw “an abrupt and significant change in customer buying behavior in March”, particularly “opportunities with new customers and expansion opportunities that were not attached to a renewal”. US business actually appeared to hold up pretty well (+52% YoY). Unfortunately, international revenue took a hit with only 22% YoY growth for 26% of total revenues vs 54% growth and 30% of total revenue in 1Q19. Management noted this difference on the call and implied most of the drop was due to a slowdown in Europe.

The overall decline unfortunately found the bottom line as well. AYX posted its first operating and net losses in 11 quarters. Management mentioned delayed sales, and the 128% NER is the first below 130% in 14 quarters. Operating expenses saw some pressure even when considering one-time charges, though the CFO was quick to point out expenses should get back in line for Q2. Hiring has been paused, nonessential spending has been cut and user conferences have been pushed from 2020 to 2021. While there is nothing fatal in any of this, it’s apparent a company that had been roaring full throttle for several quarters is now judiciously tapping the brakes as it scans the road ahead.

When the press release numbers support my thesis, I usually prefer to wait for the transcript rather than listen to the call. In this case, I had no choice but to settle in to hear what CEO Dean Stoecker and friends had to say. Management continues to have great confidence in their business – which they should, frankly – but it is also apparent AYX is adopting a much more conservative approach to COVID-19 than most of my other holdings. Instead of demonstrating a clear value add in this environment like say ZM or CRWD, Alteryx seems unsure exactly how it fits in the new remote worker dynamic. Yes, the long-term trend toward analytics will undoubtedly roll onward. Alas, it appears AYX will face some temporary headwinds as long as COVID-19 restrictions remain in place. Or as the CFO put it, “The current macroeconomic environment is clearly in a state of turmoil, and we expect it will continue to negatively impact our business.” As a result, AYX guides for just 15% top end revenue growth next quarter and a top end operating loss of -$9M (-9.5% margin). Like most firms it has also withdrawn its FY number (no big deal considering). Yet no matter how many times Dean Stoecker says “conservative” when pressed on the guide, 15% is 15% even when you sandbag. Alteryx has plenty of cash flow and money on hand, so survivability is not a concern. However, this quarter makes it clear AYX is more susceptible to the present macro conditions than I had thought and hoped.

As outlined earlier, much of Alteryx’s slowdown this quarter seemed to originate with its European business. I can’t help but note COVID-19 hit Europe about a month before coming to America. Does the fact the US has lagged many countries in overcoming the virus account for some of management’s hesitancy? It sounds like April stabilized, but how should we weight risk for May or June if this drags on longer than anticipated? Those are legitimate questions – at least in my mind – considering the US accounts for 70%+ of AYX’s business. I’m not smart enough to answer these questions, and my crystal ball has never served as anything more than a murky paperweight. As a result, I have no choice but to adjust my immediate conviction on the stock.

Alteryx entered May as my #2 position after being at or near my top spot for over a year. It has been an excellent investment, and I remain a huge fan of the company’s future. Still, the surprising numbers and uncertain landscape have put me in a much different headspace regarding allocation size. Therefore, I ended up trimming ~60% of my shares. It’s not a belief-in-the-company issue. It’s strictly a matter of personal risk in an uncertain time. I have zero issue with a smart, proven management team deciding to hunker down for a spell. The tradeoff is there’s zero chance I am hunkerin’ down alongside them with 18%+ of my portfolio. I’m much more comfortable with 8%-10% as things work themselves out. If I end up missing out a bit in the short term, c’est la vie.

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Hi stocknovice,

Thanks for sharing your thoughts. I wasn’t as disappointed about Alteryx’s numbers. It makes sense that they are more negatively impacted by the COVID-19 situation than other companies discussed here, especially considering how they make their sales. But at the end of the day, they still beat guidance and are guiding for growth next quarter. Not all companies can “profit” from this crisis. Alteryx certainly isn’t, but they are holding up considerably well. Numbers won’t be pretty next quarter, but these are very unusual times… I personally don’t like to play that game of “Who will profit most right now” or “Who will be hurt the most” and structure my portfolio accordingly. Then I have to answer even more complicated questions that are impossible to know, like timing when which company will return to normal, what is priced in already, etc… I think it complicates the process of buying the highest quality companies and holding them (until the story changes) too much. As far as I can tell, nothing has changed with the Alteryx investment thesis other than obviously, they are one of the 98% of companies that are affected by this crisis (but still compare them to “legacy companies” and Alteryx’s stock looks like a golden ticket).

In my case, Alteryx was never more than a 15% position in my portfolio, not because I didn’t like it, but because I am a bit more comfortable with less portfolio concentration than others here. Currently, it’s probably 10-11%, so we have very similar allocations, actually. :slight_smile:

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Thank you Stocknovice for your well thought out review of what you did and why. I initially felt the same and trimmed 20% of my 25% allocation in AYX at $121 (now at$130).

I’m continuing to ask myself what objectively is keeping me from having less confidence and therefore bringing down my allocation. After listening to the CC yes, what I feel is usually one of the more boring among them (See Mr Geen at TTD), Stolker was quite the evangelist. Was I caught up in this, knowing the truth in what he said. Yes I was. Yet, I’m looking for objectivity. And here is a little.

I just read Bert’s review and it not yet public but it is public that AYX 43% growth in revenues and poor visibility going forward is not the whole of what was reported. Calculated billings, which includes that the net change in deferred revenues rose by 53%. And calculated bookings, which includes the net change in deferred revenue and the net change in remaining performance obligation rose by 66%. That’s pretty wow stuff. I don’t have RPO in front of me. But wasn’t that also huge. There’s more…but suffice to say I’m holding at 20% for now.

Thanks,

Jason

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If it’s obvious that Alteryx’s growth is about to hit a brick wall, isn’t it obvious to everyone else as well? Which is why the stock is actually higher now than when it reported said brick wall. Buy the rumor sell the news type thing. Or John M Keynes’ Beauty Pageant parable. It just seems real easy to stay one step behind everything when one is positioning their portfolio around what would and would not benefit from social distancing. Especially during a time when states are opening back up.

The reason I bring this up is because I have not heard the full strategy of what to do when this is one’s approach. Sell everything that would be affected by social distancing. OK. What would the next step be?

My only guess if this is one’s approach is it would be to sell AYX and buy ZM and other remote working stocks.

Regarding your first point, I tend to not make arguments about stuff being priced-in, or information being obvious to everyone, or that a stock moved in a particular direction so my analysis was right or wrong. To me, that stuff is too close to the Efficient Market Theory, and if I believed in EMT, I wouldn’t waste my time researching stocks. If I thought short-term price movements were representative of the future, I would’ve sold AYX in spring 2018 when it plummeted from close to $40 to $30.

The strategy discussion is way OT for this board so I won’t get into it except to say that I think it depends a lot on how each investor views the risk of capital losses versus the risk of missing out on potential gains.

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So the market full well knows next quarter will be 10% YOY growth but still thinks the stock is worth more than it was before it announced that fact.

Anyone who thinks that Alteryx will grow just 10% YOY this quarter simply hasn’t been paying attention.
Saul

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Saul, they forecasted 10% growth this quarter and the stock went up since. That was my point.