Niki asked a very interesting question after AYX reported that has had me thinking. He pointed out that 2018 revenue was 203m (with the old AS605), and then immediately with AS606 it became 254m. So at ~$75/share and ~66 million shares, AYX would have a $5b market cap. Therefore:
AS605 P/S ratio: 24.6 (5b divided by 203m)
AS606 P/S ratio: 19.7 (5b divided by 254m)
So the obvious question is, if it suddenly appeared that the P/S went down, why didn’t the share price go up? My answer: AYX wasn’t being valued according to revenue (price to sales). It was being valued according to billings. That’s a tricky assertion as they haven’t given billings until this quarter, I don’t think…but it’s still something that analysts calculate. To make this idea more simple, let’s look at some of our other companies, who do report calculated billings.
Company ~mkt cap TTM revenue TTM billings PS ratio Price to Billings
OKTA 9b 399m 488m 22.5 18.4
ZS 8b 243m 330m 32.9 24.2
DOCU 11b 695m 794m 15.8 13.9
*DOCU numbers are estimates. They haven't reported the Jan quarter yet.
This certainly makes the ZS valuation a little more easy to swallow, and understand. Back to AYX, their billings, by my calculation, are about 274m for the TTM, so that actually takes the PS down near 18. But the point is that their AS606 revenue was simply a lot closer to their billings than their AS605 revenue was, which is why we didn’t see a spike in the stock price when they reported (a lot) more revenue.
At any rate, billings is definitely a data point worth checking out, if you’re inclined to look at valuation.
Bear
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Hey Bear,
Thanks for the reply, it’s very helpful! I agree with you that looking at Price to Billings or EV to Billings probably gives you a better picture than P/S or EV/S for SaaS businesses. And probably the market did already value Alteryx on a billings basis.
Probably an even better way to value SaaS businesses would be to calculate average customer value and project it into the future. There was this great article on Seeking Alpha that digs into customer econcomics of Alteryx, and also tries to calculate the 10-year value of a customer (although with very conservative assumptions). Also Saul recommended the article in the past, I think. Here is the link again: https://seekingalpha.com/article/4228688-alteryx-excellent-b…
Would be interesting to take that idea and try to value the whole business based on a customer value basis. Then again, trying to make projections about customer growth (expansion and additions) is very difficult with the limited numbers that are available to an investor. Thinking about it just now, it seems to me that, no matter from which angle you look at it, trying to evaluate these high growth businesses is pretty difficult. Maybe it’s good enough to just look at them from a P/S or EV/S angle for comparisons sake (both historically and against other companies), and have in the back of your mind their strong customer economics, deferred revenue that is slumbering on the balance sheet, and potential profit margin. If you’re inclined to look at valuation, of course. 
Niki
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Maybe it’s good enough to just look at them from a P/S or EV/S angle for comparisons sake (both historically and against other companies), and have in the back of your mind their strong customer economics, deferred revenue that is slumbering on the balance sheet, and potential profit margin. If you’re inclined to look at valuation, of course.
I could not agree more wholeheartedly. And also very much like Bear’s idea of a Price to Billings ratio. Many, but not all companies give us Billings as Bear pointed out, but for those that do, it is likely worth tracking.
On the valuation argument, I’ve come to think it is more personality driven. I enjoy having a comparison amongst companies along with one company’s valuation ranges. However, you can’t lose sight and simply invest in those that are rightfully undervalued. Of course, the best businesses will always be overvalued.
A.J.
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Looking at the WORK IPO tomorrow, I copied this from rdutt’s earlier post.
"Slack is already trading on the secondary market at $31.50 per share, giving it a valuation of $17 billion.
Slack’s Numbers
Q1 (ended 1/31/19) Revenue: $135M
YoY Rev. Growth (MRQ): 67%
Estimated FY 2020 Revenue: $600M
FY 2019 Actual Revenue: $400M
Rev. growth guidance: 50%
Current valuation: $17B
FY 2020 P/S ratio: 28
*Est. FY 2020 billings: $735M
FY 2019 billings: $517M
Est. billings growth: 42%
* Billings is defined as sales to new customers plus renewals and sales to existing paid customers."
I believe that billings includes subscriptions for future years and that’s why the figures are more than simply revenue.
Does the lower % of billings growth than revenue growth seem a concern when evaluating this company?
Thanks
JT
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