AYX and DDOG: % customers hardest hit by Covid

The AYX article that was published in SA this afternoon stated that 25% the customer base of AYX is in the travel, hospitality and restaurant market sectors that have been the sectors hardest hit by CV-19. AYX is also not cloud-based.

Thinking back to the DDOG earnings call last Monday, 5/11/20, DDOG, which IS cloud-based and has only 10% of its customer base in the travel, hospitality and restaurant sectors.

AYX reported exceptional earnings and revenue growth, and those of AYX, while good, were relatively nowhere near those of DDOG.

AYX guidance for next quarter was soft, and while DDOG expressed slight concerns about next quarter, it was nowhere near the softness and concerns expressed by AYX.

Going forward, while I am confident that AYX will continue to be a strong long-term hold, I am planning to continue to hold a 12% position in AYX, and a 20% position in DDOG.

AYX Article from SA
Alteryx: Stay On The Sidelines
https://seekingalpha.com/article/4348307-alteryx-stay-on-sid…

DDOG Earnings call notes
https://discussion.fool.com/qa-with-analysts-during-the-earnings…

sjo

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sjo,

Thanks for sharing; I’ve been thinking about this point too as one of my shorter-term performance considerations for DDOG. I only have a small position in AYX but have been fortunate with having and adding to Datadog shares since the IPO.

AYX has been a potential ‘add-to’ position in my portfolio for some time but I was disappointed not to hear more about how fast the AYX Platform and User network is expanding from a functionality and macro support perspective. To me, this is essential to form a larger moat and maintain pricing power. The uncertainty in this regard certainly leaves questions about the valuation and sustainable growth rates considering the flood of other big data synthesis and analysis tools available and entering the market place.

Still, I do admit my colleagues and clients are entranced by Alteryx work flows. A PE Shop and another Third-Party Network I work with is even making it a requirement for all below-Managing Director levels to become Alteryx certified. High adoption indeed in deep-pocket industries indeed.

Cheers and Good luck.

Eric

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On the AYX earnings call they mentioned a big portion of their revenue comes from Europe and these sales were typically done in person by Alteryx resellers.

Another factor is their revenue comes from subscriptions, not from usage.

DataDog gets revenue from usage, the more logs generated, the more revenue.

I believe the guidance was too conservative from AYX given they said April sales were already picking up. It is concerning how much they revised guidance down.

Been pretty surprised by the performance of Fastly. They reported 63 million revenue versus 59 million projected. I know they raised guidance significantly as well, but a 100% increase in a month seems excessive.

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Another major factor that likely impacts the bullishness of the guidance given by DDOG, in contrast with AYX and even looking back on one of our previous companies, Zscaler (ZS) is the typical deal size of their land and expand strategy. Each of these companies utilizes a land and expand strategy, however, the initial deal size, sweet spot to target on the organizational chart of their prospective customers is having a big impact. Less appears to be more, at least when they first land a new customer.

DDOG CEO Oliver Pomel stated during the recent quarterly earnings call that their land and expand strategy is truly a bottom-up approach, it is much easier to sell into since we don’t have to gain access to the prospect’s C-Suite to close most of our sales. When asked about net new Annual Recurring Revenue (ARR): “Are you seeing high-level CIO vs at lower divisional or departmental levels?” Pomel answered, “We always sell bottom up, and start small even when we land bigger deals… it’s a smaller fraction of what the future opportunity within that overall customer looks like.”

“DDOG’s pipeline remains consistent. Our land and expand model means we’re less dependent on landing big deals. As a result, DDOG is not being significantly impacted by reductions in business due to Covid. We are fortunate that a significant number of our customers are still growing.”

DDOG usually lands w/ 2 or more products, and most companies they sell to are very early in their migration to the cloud, so they forsee a significant runway within their existing customers.

Contrast this with AYX, whose guidance indicates they expect to see a slowdown in terms of landing NEW customers. AYX, who like DDOG, utilizes a land and expand sales strategy, is more dependent on selling NEW customers to hit their revenue GROWTH numbers than DDOG, perhaps due to the price point of AYX, that likely requires a more senior person in the enterprise to approve the purchase. Starting smaller size land, DDOG sales people do NOT require their sales teams to start at the C-Suite, and instead counts on the expansion of the initial sale and benefits from their existing customer stakeholders helping them expand the eventual deal size up the ladder to the C-Suite.

As noted in the following SA article and in the most recent AYX earnings call transcript, the lower-than-expected $95 million in revenue guidance for the Q2 means that AYX shall expect a slowdown in terms of landing NEW customers. https://seekingalpha.com/article/4348496-alteryx-pioneering-…

Many of us recall, this was a big deal for ZS. It was a major reason why ZS got into trouble with their sales process. Although both ZS and DDOG are SaaS companies, once ZS grew to a certain size, their sales team’s ability to gain access to a large enough number of C-suite executives to maintain their revenue GROWTH RATE became a problem.

Before the Covid pandemic hit back in January of this year is when the RATE of ZS’s NEW customer acquisition had become difficult to maintain as compared to when ZS was a smaller company. Although ZS’s net dollar retention continued to work in their favor and contribute to ARR, but as many of us recall, ZS struggled to load their pipeline fast enough to make NEW customer acquisitions happen. Now with the Covid pandemic in full swing, the need for ZS’s product appears to have increased significantly, as reflected in the increased cost per share of $42 on 3/13 to just under $74 today. Time will tell if this is a short-term revenue increase or a long-term post-Covid trend.

Contrasting this with DDOG, although the $20.1B market cap for DDOG is approximately 2X the current $9.9B market cap of ZS and nearly 2.5X that of AYX at $8.6B, the bottom-up land and expand strategy at DDOG seems to be a significant contributor that partially explains why it is much more difficult to maintain NEW sales at AYX and ZS in spite of being less than half the size of DDOG. Sales of DDOG are not as dependent on large NEW customers as the revenue expansion that takes place within customers who already have been landed. Since new sales at DDOG start small and expand significantly eventually to more of an enterprise level within their existing client base, it appears there is less of a barrier to entry for DDOG to land customers, even though they are a larger company than AYX and ZS combined. Given the potential for softening in the market this coming quarter, the smaller initial deal size and ongoing expansion that takes place after DDOG lands a customer, appears to be a significant driver of DDOG’s bullish guidance as compared to AYX or ZS at the present time.

sjo

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