Westport vs Shopify and Alteryx

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MusiCali posted this great question on the Westport thread. I answered it, but then I thought it might get lost there as people not interested in Westport might not see it, so I’m posting it again as a new post:

Would love it if you could compare one of our new companies that’s not yet profitable to Westport, and show how [it’s different]. Basically simply explain how we see a good company that isn’t yet profitable and it’s road to profitability. Like shop, ayx, etc. Higher growth rate, higher gross margins, fcf, etc.

Great question, MusiCali

First Westport, at the time was losing 106% of revenue. They were making big pieces of machinery (hardware) with 27% gross margin (they kept 27% of what they sold to run the business with, which didn’t come anywhere close) They had no recurring revenue and little in the way of sure orders. They were hoping for 30% revenue growth.

Now Shopify, last year, looking at GAAP, they were losing 6% of revenue (not 106%!!!). They were selling software mostly, and on subscription, with 56% gross margins (they kept 56% of what they sold to run the business with, which came within 6% of covering it according to GAAP). Their subscription revenue was recurring, the revenue they get as a little cut of merchant sales couldn’t be counted as recurring, but in reality most of it is. Their revenue growth was 73% last year. That’s the conservative presentation. In reality (non-GAAP), they actually made a profit of 2% of revenue last year, up from a loss of about 1% of revenue the year before.

Now Alteryx, is an even better story in some ways. Last quarter results they had a GAAP loss of just 5% of revenue (not 106%!!!). They were selling software mostly, and on subscription, with 84% gross margins (they kept 84% of what they sold to run the business with, which came within 5% of covering it according to GAAP). Their subscription revenue was all recurring and they had a net retention rate of 131% (which means last years customers spent 31% more this year than last year, so revenue was up 31% before they even got a single new customer). Their revenue growth was up 55%. Their operating cash flow was 14% of revenue!!! That’s the conservative presentation. In reality (non-GAAP), they actually made a profit of 3.6% of revenue last quarter, up from a loss of about 20% of revenue the year before. Wow, maybe I should go out and buy some more! Oh wait! It’s my biggest position already!

Best,

Saul

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And while Westport was dependent on a handful of customers at most, Alteryx for instance has 3400 customers so it’s not dependent on any of them.

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Wow, Thanks so much Saul. I’m honored to have such a great detailed response from you.
Also, reading through this I realized (forgive me if I’m wrong) for the first time that the companies numbers we are getting are GAAP.
So, it’s after seeing the official numbers that we can go back and look at the non-gaap numbers for a clearer picture of what’s actually happening.
Amazing stuff!
Thank you :slight_smile:

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Also, reading through this I realized (forgive me if I’m wrong) for the first time that the companies numbers we are getting are GAAP.
So, it’s after seeing the official numbers that we can go back and look at the non-gaap numbers for a clearer picture of what’s actually happening.

Hi MusiCali, It depends on which numbers you are talking about:

The earnings I give in my monthly reports and discussions are almost always adjusted (non-GAAP) numbers.

For revenue, GAAP and non-GAAP are usually the same, or close enough that it doesn’t matter. There are a few companies like Square however, that have to give adjusted numbers because GAAP makes them include a lot of pass-through revenue that they collect, but then pass on to Visa or MasterCard. They report GAAP revenue and non-Gaap (which is the real company revenue, which is smaller).

For earnings and guidance most companies use adjusted earnings in their headline numbers. In the body of their press releases they give both. In their SEC reports they have to use GAAP.

Analysts almost always use adjusted earnings in their estimates.

I hope that helps.

Saul

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Scary to think that MF recommended and kept pumping that stock. Wonder what there reasoning was or was it just an oversight…?

Thanks for the eval, good stuff!

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This is all Very informative!
Just to be clear by “adjusted earnings” you mean non-gaap?
Thanks Saul :slight_smile:

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Sorry Saul
Please disregard my last question.
I just reread your post and saw the answer in the beginning
Thank you!
I feel like this is the first time I have a chance at understanding all of this!