AYX: Hunting the Dark Side

Investment Analysis Clubs Saul’s Investing Discussions
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Greetings Stock & Software Gurus,

We can probably agree that no stock nor any company perfect. But in my imperfect Due Diligence, AYX checks almost all boxes as the wet dream of software.

I have 11 holdings right now in my major ports, and they can be grouped as follows:
Fast Growers—7— (“Saul” stocks, although the last time I checked they vary considerably from Saul’s actual holdings.)
• AYX
• CRWD
• EVB
• NET
• OKTA
• RNG
• TDOC
• ZM

Covid-19 Stocks—3—(stocks that I anticipate gaining more than the average stock during the virus contagion. Note the overlap, but I have broken them out since the positions will probably be pared down in size as the influence of Covid eventually wanes. I apologize for the name of this group, but it’s honest.
• EVB (Overlapping Fast Growers)
• RNG (Overlapping Fast Growers)
• TDOC (Overlapping Fast Growers)

Stalwarts—3—(LTBH Stocks)
• AMZN
• GOOGL
• SHOP

While studying several parameters (Valuation, Growth, Performance, Momentum, Debt, and Ownership) for each of these companies, I confirmed (as expected) that most of these parameters for AYX (to my way of thinking, at least) are improving as the price has been falling.

I don’t want to get into a heavy-duty valuation session here, but ranking all of these names for each of oh, maybe 50 metrics for each company, AYX’ average rankings for Valuation are #1 in most valuation metrics and #2 in a couple. The second-highest rating for Valuation happens to be for NET, at almost twice the average ranking of AYX. AYX’ Profitability ranking in this small group is #1. #7 for debt, #1 for ownership structure and #6 combined overall. Where rankings were dinged is in Performance 50 day & 200 day, where they come in at #9, and #7 for Momentum (vs 50D SMA and vs. 2000 SMA. While I would seldom decide against buying a company because of a recent price slide, AYX’ slide is getting long and winding, so I have cut my position considerably—something I didn’t expect to do for at least another year or three, if at all.

I give their conference calls an A, and I grade hard there, as I don’t waste time with management that talks a lot without saying much of import, or avoiding the tough questions.

Their growth is incredible, I see no serious road hazards in their path other than the same hazards present for every company doing business today, including Covid-19.

So what I would like to know from you gurus, is what’s holding them back. This is not a frivolous question of “Why didn’t AYX goes up this week?” This is a sincere question of what you think might be holding AYX back from where I (we? am I alone here?) think it should be valued in this market. What am I missing? If the debt too high, in spite of 90% Gross margins?

I am not a business user of software (well, not like some of you engineers and coders and dbase gurus here, but I’ve looked at AYX’ software and it seems like it would be intuitive to use. I hear it’s easy to install. I’ve heard NOTHING extremely negative about the products nor the company nor management. AYX has been one of my favorite companies for a long time, but my patience is not unlimited when it comes to investments. If I find nothing, I’m afraid I’ll have to move even further away from AYX. (Ha! Maybe that’s what the market’s waiting for!) Everything I see In AYX gives me that old “CHA-CHING” ring, but it never comes to pass.

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What, in your opinion, ’s the most negative aspect of Alteryx stock, the product, or the team?

I know I can speak for many when I say we semi-literate computer users are in awe of the in-depth computing and software knowledge you guys bring here to this SaaS venture, and once again, we thank you for sharing. I certainly wouldn’t have the guts to put so much of my wealth in these companies without you.

So, hey: what does the market not like about AYX? :blush:

Dan

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I have the same questions. It makes no sense. They are in a good position in a sector that all the next-gen tekkies are excited about. Their tools can feed the AI engines that find all those hidden patterns in terabytes of data.

The best I can come up with is that the rebounding “other” companies that “everyone knows” are “such bargains today” are drawing attention of the advisors and investors. Traditional blue chips that “everyone knows” are great companies were on sale. So their advisors who understand companies like JNJ and GD with their attractive dividends are telling people to buy those. AYX is in a business that few have heard of, let alone understand well enough to invest in.

Big investment houses may be keeping cash in their pockets waiting for the other shoe to drop on the economy. Many of the previous crashes have been followed by snapback rallies, just to fall back near the lows.

That’s my best guess. I am long AYX and bought more Monday. I feel it will surpass old highs or be bought out. But the big investment houses with economists and technical traders on their payrolls may be telling them to wait for a shakeout.

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In other words, there are a boatload of “shiny things” distracting the majority of investors away from AYX. It is much easier for them to understand what ZM and CRWD are doing and jump in. AYX takes some investigation to even understand what they are doing. That won’t happen much in the middle of today’s headline driven investing environment.

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An interesting comment that was made by someone on this board is that the (lack of) news flow does not favor AYX, and there are plenty of story stocks out there at the moment - ZM TDOC DOCU

I look forward to an AYX event where management can talk about financial performance and new business solutions. That should do it :slight_smile:

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This is how I see it.

AYX stock was doing pretty well until COVID-19. Recently, someone had asked Bill Gates if data and AI would help in understanding and predicting the spread of this disease. And that is perhaps a question that comes to mind for many of us. Well, having worked in the data and ML space for a while, I feel the world is still at an early stage to fully comprehend and appreciate the power of data analytics and AI.

Anyways, with the way some of the SAAS stocks are behaving presently, it may help to think in terms of three distinct categories.

Category 1: With COVID-19, the focus has shifted to SAAS companies that are solving the WFH (work from home) problem. For e.g. ZM, WORK. Looks like WFH is not possible without these.

Category 2: SAAS software that is still needed irrespective of the impact of the disease. For e.g. DDOG, CRWD, NET, OKTA. You just cannot do without authentication, security and monitoring.

Category 3: Software that helps a business to grow and beat competition by using their data. AYX mostly fits into this category. You can perhaps get along temporarily during the crisis without making the best use of data.

So, I feel the market is currently looking at AYX primarily as a member of the 3rd category.

Why is AYX still one of my top positions? While the market may be seeing AYX as member of the 3rd category, it may be missing out why AYX could be one of the best investments once this pandemic subsides and life starts returning to normal. As that happens, some Category1 stocks may see a decline, Category2 stocks should do well irrespective, Category3 stocks like AYX will help businesses make wise investing decisions and beat competition using their data once again! And if that happens, AYX might be great buy now.

Look at this article:

…By using Alteryx, a leading solution in healthcare analytics, we were able to create the below maps, showing the spread of Coronavirus in the U.S. over the period of a few weeks.

https://pkglobal.com/blog/2020/02/how-spatial-analytics-can-…

“Alteryx has been used before to research the aggressive outbreak of disease. When the Avian Influenza threatened the U.S. poultry population in 2015, the Department of Agriculture used Alteryx to supply and analyze outbreak maps. This reduced the time needed to manually process data by automating tasks, which would have otherwise tied up critical human capital. For a fast-moving disease, like the Coronavirus, using Alteryx and other GIS software can help health officials to closely monitor the direction of the disease and how fast it’s spreading.”

God forbid but if this pandemic or another one were to return, the world may be much better prepared with insights and predictions from the data of this one. The power of data and AI to solve a crisis like this in the coming years will be very crucial. That’s why I’m betting on AYX!

Cheers!
ron

long <AYX, DDOG, OKTA, NET, ZM, CRWD, SQ, ROKU>

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Dan,

I think when you look at the mini-wave of COVID attention that is being gained out there, we can break it down into a major trend, and a tailwind trend.

  1. Remote work is accelerating work through the cloud
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Dan,

I think when you look at the mini-wave of COVID attention that is being gained out there, we can break it down into a major trend, and a tailwind trend.

  1. Remote work is accelerating work through the cloud
  2. Cloud security is seeing acceleration.

In both of these tranches are companies that this board has long discussed. However, given the unique circumstances currently facing the entire globe (lack of mobility and interaction), those companies that have a top-heavy sales motion (in-person meetings, on-site installation, on-site training of super users, etc) are going to find greater challenges.

Moreso, and this is my lens, I think companies that are a “pay-as-you-use” model are setup to benefit more than “pay-per-seat”.

The pay-per-seat generally requires companies being able to add, and train, users of the software to implement the work. This is certainly true of Alteryx.

The pay-as-you-use model, similar to something like ZS, CRWD, is based on the amount of data flowing through the pipelines.

To me, this explains why ZS has bounced back… especially since it is so strongly tied to MS 365…

It raises other thoughts in my mind around companies like Twilio. They are a pay-as-you-use model. Uber left them, Lyft left them, so they are not hurt by the lack of mobility in those companies. Yet, the world currently needs increased communication pathways to reach out to customers, etc., just to communicate various COVID19 policies. I’d be surprised if there wasn’t some uptick in business.

JAF

Disclosure:+9% YTD

AYX - 28%
CRWD - 23%
TTD - 11%
ESTC - 9%
OKTA - 7%
ZS - 4%
DDOG - 4%
NET - 3%
ROKU - 3%
LVGO - 2%

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AYX is indeed a bit hard to understand.
As far as stock performance goes maybe it is not being included in the SaaS “basket” because it is not cloud based, not really SaaS. Which is considered the future trend. Companies are likely to want to hoard cash in today’s environment, they have to provide funds for WFH but improving efficiency with Alteryx can wait a bit. It is a bear market, most stocks go down, so we should expect many of ours to go down too unless they have something unique to fit to a unique situation. Like ZM

I don’t know if there is any real operating advantage for Alteryx to go the cloud but it might make it easier to sell to scared customers. Meanwhile I think ronjonb is right, other software purchases needed to expand remote capabilities are more important for any companies. But they will get a handle on WFH very soon and it will give them no competitive advantage.

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Just a point about valuation. Alteryx was valued at a forward p/s of about 15 when it reported earnings. Now its current year p/s is about 15. I’m sure they will grow this year - if not 75%. In any case, its a much better value now than it was then.

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I don’t know if there is any real operating advantage for Alteryx to go the cloud but it might make it easier to sell to scared customers

“Cloud” is someone else’s server/data-storage farm, not your server/data-storage farm. It is a marketing word for park your stuff with us and process it with our computers, all via your internet connection. Just like “well” is the water well in your back yard or the well owned by the city you live in, your data can come from a “city well” cloud place or a “backyard well” server in your company’s place.

Their software should be able to run wherever your data lives. It’s software, not a bucket of bolts. They sell it to you at work because that’s where your data is. It acts like a universal data faucet. Backyard well? City well? There might be some adaptation needed, but I can’t see why it could not have a “cloud” version for data that is parked in the “cloud”.

This is just an engineer talking. I don’t have a license or visibility into their code. In theory, it should work where you install in on what you feed it. Their licensing would need to be modified, but it seems do-able.

If the product is this good, some cloud-service AI provider like Amazon or Microsoft might be interested in buying them out and installing their code in their server farms. Imagine the business that would generate.

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“Cloud” is someone else’s server/data-storage farm, not your server/data-storage farm. It is a marketing word for park your stuff with us and process it with our computers, all via your internet connection. Just like “well” is the water well in your back yard or the well owned by the city you live in, your data can come from a “city well” cloud place or a “backyard well” server in your company’s place.

Their software should be able to run wherever your data lives. It’s software, not a bucket of bolts. They sell it to you at work because that’s where your data is. It acts like a universal data faucet. Backyard well? City well? There might be some adaptation needed, but I can’t see why it could not have a “cloud” version for data that is parked in the “cloud”.

This is just an engineer talking. I don’t have a license or visibility into their code. In theory, it should work where you install in on what you feed it. Their licensing would need to be modified, but it seems do-able.

If the product is this good, some cloud-service AI provider like Amazon or Microsoft might be interested in buying them out and installing their code in their server farms. Imagine the business that would generate.

Correct me if I’m wrong, but my impression is that a lot of firms keep a good amount of data on-prem for security reasons. If Alteryx ran its software through the cloud, you would have to send the data to the cloud to run the software. If you have data that needs to be kept on-prem, then that’s a non starter.

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I don’t know if there is any real operating advantage for Alteryx to go the cloud

What I don’t know is why people keep saying this. The data can be local, in the cloud, or both. Likewise the server. The design tool is inherently a single user tool … why would one ever put it anywhere except on the desktop?

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Correct me if I’m wrong, but my impression is that a lot of firms keep a good amount of data on-prem for security reasons. If Alteryx ran its software through the cloud, you would have to send the data to the cloud to run the software. If you have data that needs to be kept on-prem, then that’s a non starter.

You aren’t wrong. I didn’t say you SHOULD or that it is required. I said you CAN and I will add that many are going to that system for other applications. Data security is getting better. Microsoft Office 365 is an example. For most users, their files are kept on Microsoft servers. Major corporations trust Microsoft to protect their data. It’s happening.

If you trust them with your data, it is faster to run the programs that manipulate your data from the same place the data is stored.

Amazon Web Services and Google’s web operations do the same thing.

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why would one ever put it anywhere except on the desktop?

That’s true with fewer users in a team when not sharing the code and not working collaboratively.

But, when the team has to share the code (example: ETL or ELT) all the team members use Designer as a client tool and connect to the server (local or cloud), which maintains the code repository and process the data.

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it is faster to run the programs that manipulate your data from the same place the data is stored.

Perhaps. But, to start with, this is the server, not the design tool. And, only true if 100% of the data is remote. If the report includes local data, that may well not even be accessible from a remote server and even if it is, will be restricted to upload speeds, not download as is the case with a local server accessing remote data. And, as I say, running the design tool remotely is just silly.

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all the team members use Designer as a client tool and connect to the server (local or cloud), which maintains the code repository and process the data.

It is often the case that one will have code repositories on shared storage so that every one can get at the same code. But, the point is that the design tool is located on one’s desktop and runs there, regardless of where the code or data is stored.

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I have been looking at the relative performance of the stocks discussed here during the carnage through the month of March through today. It was pretty shocking to me how poorly AYX preformed, with how strong recent ERs were.

The relative performance of most of these stocks (besides ZM) were about the same and through the initial drop and bounce. But on ~3/23 most of the names kept recovering while AYX and TTD faded back down some. I can see there will be a clear effect on ad spending so TTD makes some sense. I am taking AYXs relative underpreformance as an opportunity to add (I think it should be closer to the top of the bottom tier below or bottom of the middle tier)

Top tier
ZM: +21% - In its own tier, obvious beneficiary of COVID

Flat-ish/middle tier
LVGO: +4% - Included because I own
CRWD: -8% - Strong recent ER
OKTA: -10% - Seems business as usual
COUP: -16%

Bottom tier- market is saying there will be significant effects to their business or prior valuation was too high
MDB: -20% - large-ish losses
DDOG: -22% - not sure why this is in the bottom tier?
ESTC: -29% -large losses still
AYX: -39% -???
TTD: -40% - significant impact on ad spending

bnh91

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Short term movements are just noise. Look at the P/S ratio over time. It seems to like the 15 level since mid 2018.

https://ycharts.com/companies/AYX/ps_ratio

The price has been wacky lately. It’s true.

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