Hello Everyone, new investor, new to the board. I have been searching for updated convictions regarding AYX. They have really been struggling and I haven’t been able to find anything on the board that would indicate a change in conviction but I’m concerned. Did I miss anything?
Hello Everyone, new investor, new to the board. I have been searching for updated convictions regarding AYX. They have really been struggling and I haven’t been able to find anything on the board that would indicate a change in conviction but I’m concerned. Did I miss anything?
The business has not been “struggling.” Their last quarter was spectacular - as they have been before. There seems to be some sentiment or concern that their business will be negatively impacted by the Covid-19 shutdowns. But the consensus also seems to be that this should be temporary and that it is undervalued based on its performance and expected growth until the Covid-19 crisis. AYX reports soon so that should provide clarity. The market seems to lack conviction in AYX but it seems impossible to predict how the market will react going forward. It might drift lower if AYX disappoints but might surge higher if AYX gives an optimistic forward outlook past this quarter.
Dave
21 Likes
The market seems to not like SAAS companies which require “high touch sales” right now. This could be as little as requiring to talk to a sales person to discuss package and price. HubSpot is another company that has been hurt by this trend.
I don’t know a ton about AYX’s sales cycle, but it seems to take more effort than other companies.
It is doubtful existing customers are switching back to Excel from AYX’s product, and probably one of the last services that company’s would be cutting off.
My bet is AYX will blow out the Q1 results again. There’s just no way companies would have already cancelled their subscriptions by then. A lot will depend on their guidance though.
Now seems like a good time to load up on shares to me. The company is still well below it’s 52-week high, will other comparable companies with lower growth are much closer to new or all time highs.
7 Likes
As a new investor you should learn the difference between a struggling company and one whose stock price does not reflect it’s business. As noted by others, AYX is not struggling as is about as far from struggling as one could get.
As you are new, you should be sure to read the knowledge base - several times. There is a lot of information to absorb.
Gordon
2 Likes
Welcome,
Saul recently posted his paraphrase of a Bert’s report analyzing AYX’s December quarterly earnings report. It’s quite informative and confirmed my plans to keep my current AYX position and add to it as funds become available.
Among my top reasons:
A strong competitive moat:
What makes Alteryx unique, is that while it can do data prep well… it can do data science better than anyone! and it can do so on a single unified platform. It presents enterprises with an end-to-end data solution and that is apparently what many users are after. And it is a no-code solution so it can be used by a wide range of individuals from citizen data scientists, to highly skilled data professionals.
Continuing strong revenue growth:
"The quarter was really one for the record books with revenue growth accelerating noticeably to 75% and bookings growth reaching 81%. It is rare to see this kind of growth for a company whose revenue run rate has reached greater than $600 million
https://discussion.fool.com/bert39s-take-on-alteryx39s-last-q-re…
Back in January, Tinker emphasized the competitive moat based on AYX’s unique abilities. There are multiple upon multiple reviews of Alteryx being life changing in its power and taking jobs that were impossible before or took projects that weeks or days or hours and turned them into minutes of work done.
https://discussion.fool.com/this-always-gets-me-as-this-comes-in…
There have been other recent posts emphasizing the company’s value, past successes, and future prospects. They are mostly positive, but some note that there could be a few short term glitches.
https://discussion.fool.com/ayx-hunting-the-dark-side-34456808.a…
As others have noted, it’s important to distinguish between temporary stock market price woes versus actual company woes. The company looks strong. The stock price has been up and down this year, but since mid-March, it has trended upward with a few down beats.
If you agree with the positive long term assessments (and I do), then those downbeats would have made an especially good time to buy as they gave the company a rare lower than normal valuation as noted by Bear in late March.
Lower than normal valuations
AYX - PS of 17
https://discussion.fool.com/my-portfolio-by-value-34451751.aspx
You can find other discussions with a basic Google search using
site:fool.com “Saul’s Investing” AYX
All the best,
Raymond
24 Likes
With only the last half of March really affected by the pandemic, their Q1 results will likely be excellent. Investors are increasingly looking at the future, and any suggestion of a slowdown the next few months could hurt the stock. They sandbagged guidance but any failure to appreciably raise guidance will be seen as a sign of weakness. The next few quarters are where revenue growth accelerated last year so comps are harder as well. Remember, stickiness is only part of the equation; increasing spend and growing customers is very important in keeping their growth rates up, and that may not come so easily in these few months.
Long term I think they are fine, but that is why I am concerned and why the market may not be rewarding AYX like the other security or communication plays where spend on those platforms will likely go up due to the pandemic.
4 Likes
Regarding performance risk of AYX and COVID-19, I would just point out that to date, AYX has EXECUTED better than pretty much any other company that is talked about here. Its not the sexiest company. In fact, the company seems to get little respect by the market (its valuation is almost always lower than comps). But it can’t be disputed that the company knows how to execute. They have obliterated their own targets as well as “the street” for a Long time.
While Covid-19 is certainly a unique and unprecedented challenge, I am personally placing my bet that they will continue to execute strongly. I am not saying that they won’t be impacted. I am just confident that they will get close to the best achievable result. I can’t honestly say that about most companies.
I expect a down Q1 (revenue between 50-60% of Q4), in accordance with past history. There is risks around guidance as well. The market may overreact to this, and if so, I’m a buyer.
Rob
2 Likes
What makes Alteryx unique, is that while it can do data prep well
I’ve read elsewhere (I think an SA article but I don’t recal exactly) some companies are using the Alteryx modules that move data in such a way as to replace their current ETL and data integration processes (Extract / Transform / Load) without even using the analytical functions.
It’s good to keep in mind that Alteryx actually offers a family of related products that can be purchased and used separately. Aside from the statistical analysis functionality which is their flagship product the Alteryx family includes some especially powerful data manipulation functions that are very easy to use. Drag and drop interface for data extraction. Same kind of simplicity for integrating data from disparate systems. And so forth. Even with the existing tools in the marketplace, as I understand it, few if any offer the same ease of use and speed of implementation. Stuff that used to require a lot of code is largely replaced with drag and drop.
I don’t know the product suite well enough to go into any depth on this, so I’m just paraphrasing what I’ve read elsewhere. “Data prep” refers to a lot of the data manipulation necessary before running analysis. Data prep alone is very time consuming. Alteryx offers tools that simplify and expedites these requirements.
3 Likes
My perspective:
Have just posted my first post to Saul’s board and this is my second post.
I work in business analytics area. my company is a healthcare company with >1b annual revenues and is significantly (>40% revenue impact) impacted by Covid, but we are not trimming any w.r.t analytics. We are going to hold off on purchasing new licenses though. We have multiple analytical tools for reporting and there is more need for analytical reporting at this time. I continue to hold large position in AYX as I see even more need for optimization to provide a rapid response.
People, typically are biggest expenses for companies. Besides people, services and supplies seems to be an area where companies cut their costs, and software and IT consulting services per my personal observation have lesser cuts within services and supplies.
We have smartsheets, Atlassian tools at our work and everyone likes them. They are viral within our company.
We have skype (going to retire), Teams (chat and file shares) and Webex and webex is official tool for video conf. Multiple video conferencing tools at enterprise level are common. Outside of work I use zoom and love it. Zoom trumps the rest w.r.t ease of use, CONSISTENT quality of audio and video and screen share. I have no issues with webex as well. Works well MOST of the time.
I currently own AYX (39%), CRWD (23%), TTD (11%), ZM (8%), ROKU (7%), DDOG (5%), TDOC (3%), LVGO (1%), STNE (1%), OTHERS (2%). It all started with sourcing/reading information presented from this board and my fool stock advisor and rule breaker subscriptions.
As I have not posted here before, if this is all OT, please feel free to remove my post. I respect board rules.
Thank you,
-Raj
50 Likes
It’s not true that AYX is lower valued than its peers.
You have to understand the accounting of AYX. recurring revenue at AYX is <50% of 2019 revenue. compared to 75%-90% for most of the other stocks owned on this board. On top that ARR growth at AYX is lower than their revenue growth because contract length has increased over time - which increases the pull forward contribution to revenue.
On an EV/ARR basis the only stocks in software clearly more expensive that AYX are Zoom, DDOG and Shopify, all of which grow ARR faster than AYX. Even ESTC which trades at less than half the ARR multiple of AYX grows recurring revenue faster than AYX.
And by the way this accounting goes for profitability too - it is much easier for AYX to report positive operating margin because they pull forward revenue whereas costs are more ratable.
I owned AYX until February. I am bullish long term. But I see some significant accounting driven misconceptions on this board around its growth, NRR, valuation and operating margin structure - these are all worse on an underlying basis than their headline numbers suggest.
7 Likes
Just to point out - if AYX were to grow 20% on an underlying basis this year, their reported revenue would shrink 25%.
You have to understand the accounting of AYX. recurring revenue at AYX is <50% of 2019 revenue. compared to 75%-90% for most of the other stocks owned on this board. On top that ARR growth at AYX is lower than their revenue growth because contract length has increased over time - which increases the pull forward contribution to revenue.
Hi Hastan, You may want to take another look at this. You may have some of it backward. Here’s the way Bert saw it in his most recent write-up just a couple of months ago, and I quote (slightly paraphrased as I’m taking it from my notes, and bolding is mine):
"Of all of the numbers that were presented in terms of revenue, the most salient, at least from my perspective, was bookings. Bookings grew by 81% and were $290 million compared to revenue of $156 million. Of all of the reasons to suggest that growth next year will continue near or above 50%, that bookings number has to be considered. Most of the bookings growth winds up in RPO (Remaining Perf Oblig), as there is no cash that has to be exchanged when signing multi-year Alteryx agreements [so it goes into RPO instead of deferred revenue]. For the full year, bookings growth was 70%. This quarter’s growth was the highest of the year.
The bookings number has nothing to do with the change from ASC 605 to 606. It is a simple calculation of the value of contracts signed in Q4 2019 compared to Q4 2018. The difference between bookings and revenue is backlog that will be recognized in future periods. In last year’s Q4, backlog grew by $56 million; in this quarter backlog rose $134 million. So the addition to backlog more than doubled with much of it sitting in the increase in RPO."
Saul
25 Likes
I’m not talking about bookings.
It is a fairly simple fact that when Alteryx books a multi-year contract, they recognise around 50% of the revenue during the contract year - some upfront part, some rateable to the year itself. This is unlike most other companies discussed on this board, who recognise about 14-17% of a signed contract as revenue during
Remember the meaning of accounts receivable: this is revenue that has been recognised, but not received as cash
and deferred revenue: this is cash that has been received, but not recognised as revenue.
You’ll notice for example that Alteryx’s deferred revenue positions was flat YoY in 2019, but DDOG’s deferred revenue was up 100% YoY in 2019.
If you go into the most recent earnings report of AYX you will find a line item called contract assets. This represents the extent to which AYX has recognised revenue that does not qualify as accounts receivable. It is critical for an investor to understand what this means - you won’t find material contract assets at DDOG, ESTC, Zoom, Shopify etc.
You can see that the working capital position at AYX has very materially shifted over 2019. If you look at deferred revenue less accounts receivable less contract assets you’ll find a huge revenue pull-forward from multi-year contract recognition.
I am not suggesting they are doing something wrong. But it causes a huge anomaly because of their very high growth rate and their lengthening contract terms.
The overall impact of this is that currently AYX revenue growth is inflated by around 20-25% vs peers (well understood by investment community which is why vaulation is optically lower) but it also provides tremendous leverage in reported revenue to the underlying growth rate. Not something to worry about as a long term shareholder but could be crucial this year if there is a big slowdown in new contracts - yet to be seen.
20 Likes
Remember the meaning of accounts receivable: this is revenue that has been recognised, but not received as cash
That is not the definition of Accounts Receivable. It is an obligation to pay you, but it does not mean it is revenue, that has to follow rev rec rules. I can have a 3 year service contract in Accounts receivable but I am only going to recognised it 1 month at a time.
6 Likes
Accounts receivable only relates to revenue that has been recognised. It is amounts due from customers.
3 Likes
I am referring to GAAP - which is an accrual standard not a cash standard - accounts receivable, not the general business term. accounts receivable is revenue that has been recognised, where the cash is due within one year (for the most part). The contract assets are revenue that has been recognised but the cash is not due within 12 months (technically this is recognised revenue that has not been billed - my understanding is that is because it is not due for more than 12 months so it has not been billed to the customer but there are various interpretations of this point).
If I sign a contract with AYX over 5 years on Jan 1st 2020, where I will pay 200 in cash in each year, they will recognise 600 revenue in 2020, and 100 in each of the next 4 years for that contract.
DDOG would recognise 200,200,200,200,200 - althought the contract would not be structured that way it would have to have some cancellable element to be recognised in that manner.
4 Likes
“If I sign a contract with AYX over 5 years on Jan 1st 2020, where I will pay 200 in cash in each year, they will recognise 600 revenue in 2020, and 100 in each of the next 4 years for that contract.”
When I read their financial statements I do not come up to the same conclusion as you regarding revenue recognition. According to the notes to their financial statements, it says the following:
“For multiple element arrangements that contained only software and software-related elements, revenue was allocated and deferred for the undelivered elements based on their VSOE. In situations where VSOE existed for all elements (delivered and undelivered), the revenue to be earned under the arrangement among the various elements was allocated based on their relative fair value. For arrangements where VSOE existed only for the undelivered elements, the full fair value of the undelivered elements was deferred and the difference between the total arrangement fee and the amount deferred for the undelivered items was recognized as revenue. If VSOE did not exist for an undelivered service element, the revenue from the entire arrangement was recognized over the service period,once all services had commenced. Changes in assumptions or judgments or changes to the elements in a software arrangement could have caused a material increase or decrease in the amount of revenue recognized in a particular period.”
AYX says they defer the full fair value of the undelivered elements.
Furthermore Deferred Revenue is not flat, it is up 28%, Accounts Receivable is up $ 37% and Prepaid Expenses is up 48% all YOY numbers. Prepaid Expenses is where contract assets show up on the balance sheet according to the notes to the financial statements. I don’t find any of those numbers unusual in a company growing revenues 65% YOY.
8 Likes
Hastan, your comment is partially true and well-known by investors. However please know that most Alteryx contracts are 2-3 years and not 5 years like in your example. There will be a partial revenue pull-forward, but not as extreme as you picture here. The fact that it’s only 2-3 years also implies there are renewals all the time, which are also recognized upfront for approx 35%.
4 Likes
Average contract duration for Alteryx is 2 years.
The actual contract lengths are either 1 year or 3 years.
35-40% is recognised upfront, depending on the sales mix, with the rest ratable. So for a 3 year contract, 60% could be recognised in year 1, with 20% in each of the following two.
So Hastan is exactly right in this case. This shouldn’t be a surprise to any investors in AYX. But it doesn’t mean there’s any place for concern. These contracts are renewing all the time. I don’t buy the argument that having to renew the contracts mean these aren’t recurring revenue streams and therefore should be valued less. Every recurring revenue stream can be cutoff at any point in time. So the question is, is there an alternative to AYX or is there any reason bar bankruptcy for these companies to not renew? That’s the key. Because if not, every year, and every quarter, there are contract renewals, which give a big boost to revenue in year 1 of the contract.
To ease your mind, Hastan, the CFO stated last Q that a number of contracts expire Dec 31, and are renewed on Jan 1st. This is the seasonality AYX sees in their revenue recognition - Q1 is top heavy.
21 Likes
AYX are guiding for 10-15% revenue growth in Q2 YoY. Not quite the shrinking I thought was possible but below my midpoint estimate. Likely they end up around 15-20%.
We will see over next few weeks how willing investors are to believe in the long term growth story - which I am a believer in.
2 Likes