Notes: Alteryx at Needham Conference

Dean Stoecker, CEO, and Kevin Rubin, CFO, just finished speaking today at the 22nd Annual Needham Growth Conference.

Here is a link to the webcast:

https://investor.alteryx.com/news-and-events/events/default…

Here is a summary of my notes from the call.

The buzzwords of the day are “Digital Transformation” - they both referenced this several times.

Dean started out by saying that Alteryx has developed its platform over many years - initially as a private company and now a public company. He is convinced that what we are witnessing today confirms that the self service data analytics space was the correct space for the company to begin focusing on many years ago. In other words this company is not an overnight success - it took many years to build the platform and create the business model. (My Take-away It reminds me that when we are constantly looking for competition to come along and knock Alteryx off its perch it should be remembered that it took a long time to create this company’s product platform.)

He went on to say he believes this self service data analytics business will have tailwinds going forward.

The company has a powerful business model which is subscription based with a selling motion of:
LAND to EXPAND to RETENTION

Dean then went on to describe what has been the company’s typical business case looking backward to what he sees beginning to happen now. In the past a customer would start with a “land” of about $10K - the cutsomer would then “limp its way to greatness”. Going from two seat licenses within one department to five to ten and growing outward within the customer’s business.

Now he is seeing “expansion” within a customer happening much more quickly. He feels 2020 and 2021 will see “Digital Transformation” replacing customers “limping their way to greatness”. I take this as him saying the sales cycle of Alteryx is accelerating with initial “land” customer departments moving quickly to departmental licenses and in some cases customers moving quickly to an enterprise licensing agreement.

Dean said that the company sees a direct path to $1 billion in annual revenue and the name of the game is execution from 2020 to 2022. He said the TAM is $15 trillion and the company, today, is only at about 1% of the TAM. So a very long runway of growth ahead.

He then went on to talk about the company’s plan to grow to between $3 billion to $5 billion. He vaguely described rolling out various vertical solutions that would be on the Alteryx platform. He talked about spinning out platform verticals but did not go into specifics. the timing for this is beginning in 2022.

Dean then discussed that companies want a self serve data analytics platform that will be used by both their data analysts (50 million total) and their data scientists (2 million total). The data scientist will be able to create specific customer needed solutions on the Alteryx platform that can be used by their data analysts. The convergence of both the data scientist and the data analyst is very important for the customer and is a big draw for Alteryx.

Alteryx realizes it does not have complete domain expertise for every segment of the customer base. So its customers in specific verticals are helping create solutions that are helping each vertical through digital transformation.

Dean said he does not see any change in the relationship with Tableau since it has been acquired by Salesforce.

He was asked and talking a bit about the company’s acquisitions. He said he was glad that ClearStory Data gave the company a location in Silicon Valley.

Kevin Rubin said he sees all the deal wins from the company and that he sees about 100 competitors although the main one is DAAS which I assume is Dassault Systemes.

Dean said that keeping the corporate culture in line with the growth potential is a key ingredient for future success.

He said he focuses on metrics like net expansion and net promoter score to measure how the company is doing.

Dean closed with his belief that we are now seeing Digital Transformation 2.0 - he feels that companies are going to focus on automating complex analytic pipelines and that corporate culture must be transformed in a digital way.

Frank - long AYX, see profile for all holdings

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Dean also mentioned the hyperbole in analytics and mentioned first time (as far as I remember) the NOISY data analytics market.

Kevin pointed out the long term goals (rev, gross margin, cash flow etc.) is about 4-6 years time frame. It does NOT require structural changes but good execution. I take this as they are on the right track.

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Hi Frank, Thanks very much for the summary, but I have a question about this:

He said the TAM is $15 trillion and the company, today, is only at about 1% of the TAM.

Well, 1% of $15 trillion is $150 billion

Maybe they said the TAM is $15 billion?

Best,

Saul

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Yes, my error - the $15 trillion number is NOT TAM - this number refers to the value of the data available today that could be analyzed by data analysts and data scientists. I just rechecked the webcast and it comes up at 05:40 of the recording.

My biggest takeaway of today’s webcast is that according to the CEO the company’s sales cycle is accelerating as customers are inclined to move much more quickly from a tryout of the platform to a departmental license or an enterprise license agreement. My belief is that this should lead to an acceleration of revenue growth.

Frank - long AYX, see profile for all holdings

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Now he is seeing “expansion” within a customer happening much more quickly. He feels 2020 and 2021 will see “Digital Transformation” replacing customers “limping their way to greatness”. I take this as him saying the sales cycle of Alteryx is accelerating with initial “land” customer departments moving quickly to departmental licenses and in some cases customers moving quickly to an enterprise licensing agreement.

Dean then discussed that companies want a self serve data analytics platform that will be used by both their data analysts (50 million total) and their data scientists (2 million total). The data scientist will be able to create specific customer needed solutions on the Alteryx platform that can be used by their data analysts. The convergence of both the data scientist and the data analyst is very important for the customer and is a big draw for Alteryx.

These are the two key takeaways. We discussed them before. First, Alteryx is focusing on larger customers who turn out to not only land larger but to expand faster thus accelerating their normal fabulous sales process. Alteryx indicates that they have a sales formula (like say Paycom does) and that the sales process remains the same with larger organizations, just moves faster.

Second, this latter aspect creates a networking effect. There is a synergy from standardizing enterprise wide on Alteryx in order to better have data scientists work and coordinate with citizen data scientists. This process is more difficult when multiple tools are used (many that one of these categories either don’t use or really can’t use). With one standardized tool however, like with Excel, and math quant using Excel can easily share the spreadsheet with a business analyst, who can then make modifications, customizations, or share data back up the loop as even though the math quant does things with the spreadsheet far beyond what the marketing analyst can do, and the marketing analyst sees things that the math quant has no contact with, they are now both working in the same sheet and now working TOGETHER. At least that is what Alteryx is talking about.

Such a synergy has historically created large CAP for software packages as compatibility and training on a software package are so important.

Tinker

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My biggest takeaway of today’s webcast is that according to the CEO the company’s sales cycle is accelerating as customers are inclined to move much more quickly from a tryout of the platform to a departmental license or an enterprise license agreement. My belief is that this should lead to an acceleration of revenue growth.

Hi Frank, it already has, as the last three quarters have had revenue growth of 51%, 59%, and 65%. I’m not sure if we can reasonably expect more as the numbers get larger. That 65% was the largest revenue growth per quarter since the Dec 2016 quarter when Alteryx was a tiny company with $25 million in revenue up from $15 million.

Best,

Saul

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Dean said that the company sees a direct path to $1 billion in annual revenue and the name of the game is execution from 2020 to 2022. He said the TAM is $15 billion(corrected) and the company, today, is only at about 1% of the TAM. So a very long runway of growth ahead.

Just a shoutout to Mr. Burt Hochfeld. This corresponds with his projected three year growth rate for the company.

There was an article posted on Seeking Alpha yesterday saying that the author’s DCF valuation yields a fair value of $192 per share. He didn’t post his actual analysis. I have no idea how to do a DCF analysis, but I do have a spreadsheet that does it for me. I just need to put in the projected growth, discount rate, and current revenues and expenses.

If I project:
A) 46% growth over the next three years, followed by two years of 30% growth, two years of 25% growth, two years of 20% growth, and one year of 15% growth, and a terminal growth rate of 10%.
B) Growth in margins that corresponds with the company’s goal.
C) A discount rate of 10%

Then the spreadsheet spits out a $196 per share valuation.

Of course this is all spitting in the wind. I don’t have a crystal ball and changing any of these inputs can have a big effect of the fair value of the stock. Still, if I attempt the same analysis with The Trade Desk, using my best estimates for forward growth, TTD comes out as fairly valued at current prices. This is in stark contrast.

I guess my point is that Alteryx seems to be a good pick right now based on both a growth story basis as well as a reasonable valuation standpoint. It’s a rare stock that makes sense from both a growth and a valuation standpoint. Bert says “it should be a cornerstone of any growth investor’s portfolio” and Spruce Point Capital - a short seller - is also long. Contrast this with Shopify, for instance, which is an eternal battleground between those who see the potential markets vs those who see the current numbers.

I think the biggest learning curve for me as an investor has been learning to understand the concept of the “wall of worry”. I bought Apple in the winter of 2009, but didn’t hold on to it because doubts were being raised everywhere. I thought I was a genius holding through the downturn and selling for a 20% gain. Oops. The wall of worry also exists for Alteryx. But none of the worries seem compelling to me. Every time a doubt is raised, as soon as I look into it, the doubt dissolves. For instance: OMG! Look at the competition! They say there is no competition, but what about RapidMiner! A quick Google search then shows me that RapidMiner has a paltry 19M in annual revenue. Big NothingBurger.

Alteryx is currently 37% of my portfolio. I’m considering making it 100%.

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Bobby,

I share your enthusiasm with AYX, as it is my number one position. The risk however, is in what we don’t see as explained by Morgan Housel.

https://www.collaborativefund.com/blog/risk-is-what-you-dont…

Jim

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Alteryx is currently 37% of my portfolio. I’m considering making it 100%.

Bobby, my advice would be “Don’t do it!” None of us knows for sure what the future has waiting for any one of our stocks. We have an idea, but we don’t KNOW. Just think back to Nvidia, and how even the CEO got it so wrong.

Saul

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Thank you to all that are contributing to this thread. It is quite eye-opening.

I’m sorry if this is too off-topic, but just to put this whole thing in context, how would you compare your excitement/confidence with AYX at this stage of the game? Would it be analogous to how most people here felt about SHOP 2-3 years ago, when the market cap of SHOP was about $10-12 billion? Or would there be a better comparison in mind based on your investing experience and expertise?

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how would you compare your excitement/confidence with AYX at this stage of the game? Would it be analogous to how most people here felt about SHOP 2-3 years ago, when the market cap of SHOP was about $10-12 billion?

Koji,
You are right! Comparing levels of enthusiasm are really OT. Please no responses to this!!!
Saul

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I wished they’d be pushing Alteryx to the universities more. They do have a free student license for the designer but it never seems to be on any of their top level strategy presentations. The drive to become the no. 1 software used by graduates is how Matlab and AutoCAD became household names.

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Agree. I work in a large research university at the graduate level in public health, a field that involves doing studies with tons of big data and seem to be the only one that has heard of AYX, at least in my immediate circles… We are a stubborn lot though, and I think many use the analytical tools they used when they did their dissertations. Stata, SAS, increasingly R are used to work with data depending on what generation researchers were in when they graduated and only these are installed in our computer labs…

One could argue that AYX products could be really useful for masters students to bring into their jobs when they graduate especially those that work with large datasets or with policy makers but I haven’t heard any discussions of that at all… suggests there is still room to grow. A key milestone would be when we see the software installed in the computer lab as that would mean someone is using it to teach.

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