I’ve seen a bunch of different threads. I wasn’t sure which thread to post this in since there are at least 3 going on between here and NPI, so I started a 4th :). Here are the threads
https://discussion.fool.com/ayx-just-released-preliminary-result…
https://discussion.fool.com/alteryx-and-follow-the-money-3411919…
https://discussion.fool.com/ayx-prelim-thoughts-34118575.aspx
The main Concerns I’ve seen raised about the prelim numbers are .
- Customer Growth isn’t accelerating and is slowing down on a percentage basis
- Revenue Growth Slowed Down
- TAM isn’t as large as we think it is
Lets take each one of those separately.
Customers
GauchoChris had a great post https://discussion.fool.com/here-is-the-customer-growth-for-the-… which is worth reviewing. Shows the customer counts quarter by quarter along with calculated % growth rates. Some people rightly said that AYX’s absolute numbers look ok but they aren’t accelerating their customer growth from a percentage standpoint.
I think it is important to point out what AYX considers a customer. Here it is from the from the 10-q "
We define a customer at the end of any particular period as an entity with a subscription agreement that runs through the current or future period as of the measurement date. Organizations with free trials have not entered into a subscription agreement and are not considered customers. A single organization with separate subsidiaries, segments, or divisions that use our platform may represent multiple customers, as we treat each entity that is invoiced separately as a single customer. In cases where customers subscribe to our platform through our channel partners, each end customer is counted separately."
So basically the customer count is relatively unhelpful as it doesn’t tell us how many users or what deal size. They could have “one” customer that had 100 users, or they could have 5 customers that were 500 users. Just depends on how the customer is being invoiced. Honestly I wouldn’t pay too much attention to the customer count other than that it needs to keep increasing.
Revenue Growth
More importantly we should be paying attention to revenue growth. On the face of it the 53% is a bit of a slow down from the 58% last quarter. However we just don’t have enough information because we don’t have deferred revenue. As you all know how revenue is being recognized has changed with the switch from ASC 605 to ASC 606. I suspect they are trying to show us that growth is intact by including billing growth of 60% in that press release.
Here is a tidbit from their last conference call A lot of good one-liners in there. A question for Kevin as a follow-up on – just looking into Q4. Obviously you’ve had a really strong quarter a year ago with calculated billings, the metrics that everyone looks at, growing north of 60%. I’m just curious how you’d be encouraging us to look at that setup heading into Q4, just anything to call out in terms of seasonality. I mean, I know you mentioned there’s a little bit more favorable seasonality from a rev rec perspective in Q3, but just any thoughts on bookings or billings basis heading into Q4.
Kevin Rubin
I mean, we don’t guide to calculated billings. We obviously understand the importance to you guys. What I would just say is go back to Q4 guidance and look at that relative to growth rates and how we think about the year.
So for the first time they gave us calculated Billing. I suspect they have done this because they want to show that growth is intact and in line with the last couple of amazing quarters. We will need to see deferred revenue to see how much business they really booked this quarter but if calculated billing growth is 60% then they did just fine. The 53% revenue growth may just not be an apples to apples comparison for a couple of reasons. 1) switch in account practices, ASC 605 to 606 or 2) Different mix of business booked so the contract has more revenue recognized later instead of up front. 3) Revenue recognition seasonality as they mention in the tidbit above.
The one last twist in this which I’m not sure if they are saying is for q4 2018 or q1 2019 for their ASC 605 to 606 switch. Maybe others can weight in. This is from q3 2018 conference call.
Before we turn to guidance, I’d like to update you on our adoption of ASC 606. As we discussed with you last quarter, we will no longer qualify as an emerging growth company after December 31, 2018, and we’ll adopt the ASC 606 when we file our Form 10-K in early 2019. We continue to evaluate the potential impact of ASC 606 on our financial statements and have not yet reached a final determination
TAM
I think this is worth watching because I’ve always been skeptical of their TAM numbers. One doesn’t say they are targeting 30 million disaffected excel users and then price their product at 4-5k per seat. Growth will become harder for them at some point. My gut feeling is that this isn’t that point but we need to see all the numbers for this next quarter, conference call and guidance.
I still feel good about my AYX investment.
Best,
Ethan