Well, Saul mentioned Alteryx (AYX), and my initial thought was:
I would probably put AYX at 8, just ahead of HDP and TLND, because AYX is growing faster and closer to profitability.
I was giving them an 8 because, like with HPD and TLND, I just can’t really understand their product first-hand. I just think there is just so much competition with data companies and I find it hard to differentiate. Still, at an 8, my conviction in AYX was higher than on TLND (7.5) or HDP (7.5) because of AYX’s great financials. I simply wasn’t buying AYX because of the price. TLND and especially HDP are sooooooo much cheaper. I’m glad I looked further. Saul said:
Bear, The more I think about this… I just don’t know! Sure anything can happen, I’m well aware of that. But with a dollar-based retention rate of $135 (and rising), doesn’t that mean that this year’s customers will provide $135 in revenue next year for every $100 they provided in revenue this year? And presumably at lower acquisition expense. That means revenue will “automatically” grow about 35% next year just from old customers, not counting new customers acquired during the year, barring some very unforeseen event.
That seems to me to be fairly secure growth.
I dug some more, and I’ve finally seen enough. I’m in for a 4% position. I’m raising my conviction on AYX because I do think it’s likely that their customers, who understand their offering and seem to love it, will continue to spend more and more with AYX. So I’m moving them up to 8.5:
ALTERYX (AYX) - 8.5. Almost all revenue is recurring, they’re on the cusp of being profitable, they are growing like crazy and have been for years. Their astounding gross margin means lots of ability to leverage – which they are doing as costs drop as a percentage of sales. Financially speaking, they’re a 10. But because I am unable to evaluate their offering versus their current and potential competitors, I’m giving them an 8.5.
I know it’s arbitrary and these things could always go either way, but 8.5 was enough for me to jump in. Because I’m now that much more confident in AYX than in TLND or HDP, I’m willing to take a small position in AYX despite their much higher valuation. Especially as fast as they’re growing. And they’ll soon be showing some EPS, which could kick things into another gear.
I’m still not as confident in AYX as in my top few positions, but it really would surprise me if this business faltered much.
PS Alteryx reports on their December quarter on 2/21 after markets close.