This post has a lot of links if you want to dive deeper but it was already long so this is more of a narrative around all of that…
Why I’m Looking (and posting) …
As I continue to focus our portfolio down in to the best of the best, I have unlocked some more funds to redeploy. As always, I started the exploration with positions I already own. I noticed Alteryx (AYX) PS is 24 (according to Yahoo Finance) which is fairly reasonable compared to “similar” holdings, like DDOG at 61, OKTA at 38, COUP at 40. To clarify, this is just a quick check, not something actionable on its own. So I started to refresh myself on AYX to see if it is a good place for new money.
The other reason is that this is a small position for me at 3.7% of my portfolio. As an observation (not a decision point) I see I am up 30% after three purchases…
Buy Date Cost Gain
2020-05-01 105.28 +55.36%
2020-05-06 117.52 +39.18%
2020-06-16 145.41 +12.48%
I’m not sure if anything company-specific is driving this price increase, so this is, again, just data. (“Buying-up” is not a real thing. It is anchoring. Only the value today and in the future matters). I’d like to answer this question though as I do like building out positions at good value-points (not price-points), if possible, and applicable.
A Refresher on Last Quarter and the Timing of the Pandemic…
- The last quarter was Q1, for the period ending March 31st, 2020.
- The WHO declared the outbreak a pandemic on March 11th and around that time everything closed down
- The results call was on April 21, 2020 at 8am PST
We know last quarter didn’t look great to our growth-glazed eyes. Growth dropped from about 75% to “just” 43%. Still pretty great growth, but we don’t like to see trends go downward. Reading the transcript (https://www.fool.com/earnings/call-transcripts/2020/05/07/al…), CFO Kevin Rubin said, ”Coming into Q1, the momentum that we saw in 2019 continue and we got off to a solid start to the year. However, in March, we saw activity levels slow considerably. This quarter included a couple of weeks of the worst, purely reactionary, period of the COVID-19 pandemic. This was the time when everything just stopped and no one had any idea what to expect, really.
To make matters worse the company guided down again to 20% growth next quarter (the quarter we are in now). This post here: https://discussion.fool.com/4056/ayx-q12020-34518614.aspx, quoted CFO Kevin Rubin adding strength to the downward guidance by saying, ”based on the Q2 quarter-to-date activity coupled with the ratable portion of our revenue that will be recognized in Q2, we believe we have sufficient visibility to provide Q2 guidance for revenue, operating income and EPS.” BUT, later says, “As a result of the current macroeconomic environment and greater variability in our business, our guidance assumes the following. We are expanding our guidance range to account for the increased uncertainty of new business, timing of renewals, slightly higher churn rate and the potential impact to revenue of more flexible payment terms” This seems a little contradictory in that he says he has visibility and then includes a wider possible range of results because…no one had any idea what to expect, really.
I want to call attention back to “…based on the Q2 quarter-to-date activity…”. …but AYX hosted their results conference call on Tuesday, April 21, 2020 at 8am PST and preparation for the report wasn’t done that day. It was at least a few days in the polishing I’m sure. So, in mid April, I’m honestly not sure how much the everything-moving-to-the-cloud-sooner narrative was in effect; or the confidence in customers to react to it. With imperfect information, I think the best we can do is weight the accuracy of the guidance toward “partially accurate”. I don’t think they were sandbagging, but I also don’t think they had any working crystal balls either. The “activity” after this call is not included (since it was still in the future). The question here is how much of the quarter will that visible stuff cover. 70%? 80%? How much can change in the last 20%? ….could be a lot all things considered, but not betting on it. This is just one more data-point.
A Pattern Forms…
There are some things that caught my eye as I started to look through the recent past. Something is cooking and it is starting to smell good in the kitchen.
In the last quarter, while revenue dropped, Sales & Marketing, General & Administrative, and Research & Development all increased in line with, if not beyond, previous growth (as a percentage of revenue these all look like they jumped up like 80%, which is close enough to the difference between 43% and 75% revenue growth we saw, or perhaps they even accelerated this re-investing in the business. This sure looks like a ramp up for something. In spite of the increased spending, they were still cash-flow positive, as they have been for 2 years now. This appears to be a carefully managed plan.
I’ll add this next post reference to help you all remember where we were on May 8th-11th on this board….
May 8th, 2020 - Post: “Alteryx”
https://discussion.fool.com/alteryx-34498605.aspx?sort=whole#345…
Saul started this thread with:
"An hour and a half after Alteryx reported their results, in the middle of the call, I decided I needed to post on the board in the middle of the conference call and alert you to what I was hearing: That, if the tone of voice and what the CEO and CFO were saying was true, Alteryx was fine, and don’t sell out of your positions!
Most people listened, but a lot of the same people who always find fault with what I write, and with our companies, found little carping details to worry about and argue with.
Well, Alteryx closed a week ago, last Friday, at $105.75, and it got as low as $105.00 in the aftermarket after earnings. Right now, two days after the earnings report, at the close, after being as high as $131.30, Alteryx closed at $130.65, up $25 in a week from last weeks close, and up $25 in two days from the premarket low.
I hope that you were one of the ones who kept their positions."
I ventured an attempt at a summary on May 11th when I replied:
- Everyone is happy with Alteryx. They did well this quarter in absolute terms, but in relative terms some are disappointed. There is some disagreement about the short term but not the long term.
- Some people trimmed their holdings due to uncertainty and risk management reasons relative to their own risk tolerance or portfolio management philosophy, but no one mentioned selling out entirely. Some said they are holding, which is the other side of the same coin. My own position is just 2.3% of my portfolio so I am holding and looking for opportunities (dips, clarity, etc) to add more at a better value.
Today AYX is at $163.56 by the way, because you were probably wondering /wink.
May 11th, 2020 - CEO Hints at New Category
I wrote a post (https://discussion.fool.com/ayx-unveils-analytic-process-automat…) when the CEO said, “over the next two or three weeks you’ll start to hear a lot more about a category of software that we see emerging, that we intend to own. And you’ve looked at a category creation in the past whether it was ACM or ITSM or SFA, the winner in that category tends to get 85% of the market cap of the entire category. And we intend that to be Alteryx. So we believe we’re particularly well positioned for, not just the short term but the medium term and the long term.”
What a comment! We are rarely served an amazing driving factor for growth directly from the CEO. Yes Mr Stoecker, sir, let’s do this own-the-category idea. It has merit. (I hope we can quantify this soon)
I speculated that what the CEO mentioned here was about Analytic Process Automation (APA), which was announced that day (https://www.prnewswire.com/news-releases/alteryx-unveils-ana…) and it turned out to be correct (to my surprise, since I’m not an expert or insider here, just following the logic!).
Don’t miss the reply in this thread by CMF_muji either! There are plenty of supporting links and nuggets of info to nibble.
June 16sth, 2020 - Introducing Alteryx Analytics Hub and Alteryx Intelligence Suite
The first news posted to the company press releases page since the platform was announced…
https://www.alteryx.com/press-release/2020-06-16-alteryx-int…
Alteryx Introduces Analytics Hub and Intelligence Suite to Accelerate Analytic Process Automation
…Alteryx Analytics Hub, a new product to extend the power and value of the Alteryx APA Platform, and Alteryx Intelligence Suite, a new predictive modeling add-on for Alteryx Designer. Both offerings help fuel rapid digital transformation by delivering on the promise of APA, transforming how businesses leverage their data assets, optimize their processes and upskill talent in a unified, human-centered platform. …
What these do at a glance (quoted from the link above):
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Analytics Hub takes users from data discovery, to insight, to action while automating repetitive, time-consuming data processes. With Analytics Hub, the time from data to decision is rapid, and flexible deployment (cloud, on-site, or using a multi-node environment) means organizations can scale the platform with ease.
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Intelligence Suite helps build and reinforce datasets, making it easy to extract and import data from traditionally difficult data sources such as PDFs and images. This gives in-house analysts the ability to leverage valuable data to drive comprehensive insights back to the business.
Bring all of This Together
It sure looks like Alteryx started ramping up for a big push on their new platform. This is all at a time where every other company we follow has seen accelerated adoption or expansion. I don’t know if this quarter, which will include a lot of pandemic-driven cloud acceleration, will be the one to reap the revenue rewards of said acceleration, but I’m not sure we need a reversion to 75% growth this quarter to be very happy shareholders either. This quarter is from the end of March to the end of June. I think this means we should see some ugly parts from the first half. What I really want to see is a whole lot of customer wins and proof that avenues for revenue growth are wide open. In other words, I want to see a lot of revenue growth coming. That will be enough to make everyone happy I think.
The market has the same numbers we do. It is likely last quarter’s guidance has been consumed and digested. Only the future should matter now.
I’ll let their CFO finish off my post the same way he finished the earnings call:
“while we are in unprecedented times we believe Alteryx remains well positioned given our strong product market fit, significant market opportunity given the low penetration into our total addressable market, powerful business model capable of delivering strong levels of profitability and operating cash flow and our solid financial position with approximately $1 billion of cash on the balance sheet. We have demonstrated the financial discipline of balancing investment for growth while maintaining profitability. We plan to continue to manage our cost structure based on top line dynamics in line with historical levels of profitability.”
I believe I will be adding to my position this week. Anyone saying “Yay” or “Nay”? Please share!!