a strategy for a momentum investing board
I doubt that there are many of the senior participants here that would characterize what is done here as “momentum investing”.
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I doubt that there are many of the senior participants here that would characterize what is done here as “momentum investing”.
It’s okay tamhas, if you scan back over carter’s previous posts, you’ll see that he contributes little to the board, and that a large proportion of his his output is snarky little posts just like that one (and that 90% of his posts have just zero, one, or two recs). I wouldn’t worry about him.
Saul
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excuse my spell checker, that’s Carver, not Carter.
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Reason to hold is because it is a category crusher and leader in the field. There aren’t really any other companies who offer non data scientists an opportunity to work seamlessly with large amounts of data.
The TAM is massive and covid will just accelerate the shift towards data science. Additionally I can definitely see them being an acquisition target in the next few years.
Would be a great bolt on for Microsoft for example. Can do so many types of analysis that can’t be done in MS excel. As well as do repeatable steps if working with the same data every month.
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Nothing analytical or meaningful to add, just compelled to share…
AYX was the first stock where I took a full position in a new company during my transition from ~55 stocks to ~8-12. I learned about AYX here, I think from Saul. I’d been reading about concentrated portfolios for a time, disillusioned with the / ratio of following some Foolish / other subscription portfolios.
My only regret now is not ‘backing up the truck’ when AYX was under $100/share. This looks to be a generational-wealth-building investment. As always, stay informed, be alert.
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Agree Bear
I think it’s pretty unrealistic that revenue growth could be less than around 30% in Q2. And as I said, I’d expect 40%+. And I even think a realistic possibility is that they re-accelerate to 50%+ growth or more. All that would take is normal renewals, and for in-quarter bookings to return to maybe 75%+ of what would have been expected in a non-COVID world.
That’s why I’m holding through the medium term
n short, I still like AYX long term. They’re seeing a bit more financial impact than DDOG and others…but DDOG sports a PS of about 54 and AYX is at about 21. The risk/reward on AYX seems more than fair to me. I’ll keep my 13% position and consider adding if share price dips.
…and that’s I’m not cutting my ~8% in order to look for redeployment options. (The way I have done with MDB for fundamental reasons and Shopify for concentration reasons).
Ant
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Smorgasbord1,
I thought I might chime in about your question:
“I find that a bit perplexing. The main value proposition for Alteryx is that it is “self-service.” You don’t need programmers or similar expertise to gain value. As they say about themselves (https://www.alteryx.com/ ):”
I was a data analyst and an Alteryx designer user at a medium sized insurance company (1,5000 employees or so).
I did this for about a year before I moved into wealth management. The company used Alteryx extensively to help manipulate and cleanse operational data so that we could create analytics dashboards, create reports and answer questions from upper management.
I came in with no data analyst experience and no knowledge of Alteryx. Within 3-4 months I had a rudimentary ability to use the tool and within a year I was able to effectively to pull data from multiple sources and manipulate it. That said, there were others on my team with more experience (and more technical aptitude) that could do amazing things with Alteryx. While I was mostly just cleansing and manipulating data they were creating complex macros, custom formulas all while navigating multiple levels of detail. The best analysts on the team would even integrate python script into the tool for more complex formulas.
All that is to say, Alteryx is an amazing tool that is very user friendly for beginners. (Some people in the finance department used it only to replace excel reports that they used to create by hand - this saved them hours of work each day!) But it also has an amazing depth to it if you know what you’re doing. Together, this makes it a great sell. There’s relatively low barriers to entry for using the tool but there’s always more potential value that you can get out of it.
Also, as a side note, Alteryx is very, very sticky business. Our small team of data analysts using Alteryx created workflows that ran daily and hourly to pull fresh data into visual dashboards and reports. The net result is that all of the operational and sales dashboards and many of the reports (that go out to the field as well) were dependent on these Alteryx workflows running each day. Getting rid of Alteryx would dismantle this entire network of analytics.
Hopefully this provides a little bit of clarity.
-Calvin
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Two months ago I predicted (in the first post of this thread) that I believe AYX will grow 40%+ this quarter, and I still believe that. What is starting to worry me is guidance for the next quarter, and the next few. AYX has always enjoyed an extremely high NER because its customers use it more and more over time. Some of those customers are hurting in this recession.
Now, there’s a case I’ve made in the past that you don’t stop spending on AYX if you can spend a dollar with them and turn it into 3 dollars because the product creates value. This works in a booming economy, because growth abounds, so there are always 3 more dollars to grab if you spend 1 more. In other words, in good times AYX’s customers’ customers are buying. Example: PWC doing consulting projects using AYX. If there are less of these projects, maybe their “expand” with AYX goes down. Then there are customers like Coca-cola who (I assume) are using AYX only internally, rather than for consulting. If these companies are hunkering down and spending on essentials (like cybersecurity) then perhaps they don’t “expand” as much as usual with AYX. We saw NER tick down last quarter…could it fall further? Looks like data science might not be a priority right now: https://www.zdnet.com/article/developer-data-scientist-us-te…
Contrast the AYX customers I’ve outlined above with FSLY whose customers (Shopify, Amazon, etc) are thriving in the current environment.
Contrast CRWD and DDOG and ZM whose customers may include both thriving and struggling companies, but who need CRWD and DDOG and ZM to help them survive in a cloud world.
In summary, is AYX’s product essential, or is it more related to business growth and expansion, which may be on hold right now?
To be clear, I have no idea what to expect from the growth numbers in the near future (and that’s what scares me). Alteryx was so attractive because growth was actually accelerating. 60% or 70% growth is game-changing, but we can’t expect that any more. If the growth for the near future is really going to fall to 20% or below, we could see a world of pain, but that’s not what I expect, either. So if we end up in some sort of middle-ground scenario where AYX grows in the 30% or 40% range for the foreseeable future, I’m not sure AYX is a knockout “buy” right now with a PS ratio around 25. To me that seems like about the most we can logically expect, but I’m open to other thoughts!
I’ve trimmed some more and my AYX position is under 8%, and I am considering if I should be trimming further.
Bear
51 Likes
Then there are customers like Coca-cola who (I assume) are using AYX only internally, rather than for consulting. If these companies are hunkering down and spending on essentials (like cybersecurity) then perhaps they don’t “expand” as much as usual with AYX.
From people who work at Coca-cola what I understand is that they are relying more heavily on AYX to help them analyze their massive business. They are trying to optimize their operations, manage costs, focus on highest revenue and margin areas, purge pieces of their business that are not performing. It is more important now than ever to analyze and optimize their operations and AYX product is a key to this.
I don’t know if this translates into more direct spending on AYX products or just extending their existing agreements.
ClydeJ - no position in AYX.
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I think the biggest risks of this “COVID” environment are:
#1: Selling GREAT companies with GREAT products because we believe their business might see a temporary down turn.
#2: Buying less great companies (hello Blue Prism) because we think they are a timely opportunity.
#1 is worse because of the massive opportunity cost of missing out on tremendous compounding growth (we have done this on this board with SHOP, TWLO, TTD, etc)… but #1 also leads to #2 which amplifies the problem.
Alteryx is a fantastic company with a fantastic product, fantastic management, fantastic balance sheet, and they’re in an industry that’s truly just getting started.
Data analytics is more important now than before COVID because it’s a “force multiplier”. It allows businesses to maximize everything from R&D to Sales and Marketing, recruiting, etc.
I’m not selling this one because I’m afraid of a short term down turn.
Because… what if we’re wrong? Anyone see Pinterest today? Up 30%+ after posting a quarter that beat lowered expectations. Alteryx could do something like that… and even if they disappoint, I’m not sure there’s a company I’m more confident in long term.
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Hi Bear,
I am seeing it pretty much the same way you are. I figure that they will come in at double the midpoint of the growth they guided to (which was 14%), at least, but I don’t see them going back to 75% growth any time soon. I have also trimmed more and am also under 8% now (at 7.5%, actually).
As far as the title of your post, which was Why Keep Alteryx? I have some thoughts.
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- They will come in WAY over guidance, even if they only grow at 30% (I think they may even beat that). They may have just been scared and super-conservative when they gave that guidance (it was the end of March and through April when the world felt like it was coming apart, after all), and they might even come in at 40%.
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- They are a Category Crusher. They are dominant in their market, and all their customers love them and benefit from having them.
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- They are continuing to innovate and have introduced their Analytic Process Automation platform.
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- And finally, if you are like me, the shares you have left are ones you bought at about $28 in a taxable account, and selling them at $173 would create a big tax expense, which might make thinking past the end of Covid make more sense.
Best,
Saul
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great insight Saul. Regarding your point in 1, above: Are you thinking they might come in at ~40% based on your (excellent) intuition or is there some other data out there that suggests such a massive beat? They’ve been hiring like crazy, even this month, so that is definitely a bullish signal, but I can’t find much information on AYX. Reporting anywhere near $150M in Q2’20 revenue would be a significant accomplishment, given how conservative they were on outlook last quarter.
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Are you thinking they might come in at ~40% based on your (excellent) intuition or is there some other data out there that suggests such a massive beat?
Hi Gary,
Well back when they reported they were still somewhat in shock, and talking about retrenching, and stopping all hiring, and cutting back on this and that, and now, as you point out, they they are “hiring like crazy.” That makes me feel that their guidance is very outdated.
Saul
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I am concerned not only about this quarter but also about guidance for the next quarter and the remainder of the year.
We talk about how companies are already halfway through the current quarter by the time they report the previous quarter’s results. AYX guided to $105-108 million in their Q4 report on Feb 13 (six weeks into the quarter) and barely topped the high end of that when they reported on the quarter ending in March. In the US, there were only 2 weeks of pandemic-related shut down in their first quarter.
Gary quoted:
CFO: “Although we saw a fairly abrupt slowdown in March, we did see activity in April of 2020 fairly consistent with the level of activity we saw in April 2019. So conversations with customers became more productive, we saw new logos around the same level we had seen in April…. So there was a resumption in business activity in April, in spite of the abrupt slowdown that we experienced in March.”
I don’t know whether this started on April 1 or just by the end of April, so maybe only half of April was back to business.
Gary also posted:
CFO: “We’ve had [a small number of] customers with outstanding invoices who have reached out and asked for accommodations, which we’ve generally provided. So we’re working with customers specifically in what we’ve defined as impacted verticals – travel, hospitality, manufacturing, retail, etc. – we will work with them on a payment program that will meet their business needs given the impact they may have had.
Again, the wording here is unclear. A small number of their customers basically couldn’t pay their bill by the end of March, before most of the economic impact from the pandemic occurred. (Unless I have this wrong and he was talking about guidance.) A scroll through Alteryx’s customers page (https://www.alteryx.com/community/customers) shows numerous companies that are in the hardest-hit industries. Airlines, hotel groups, retailers, universities. Sure there are others, but I can’t help to think back to what AYX does – it democratizes data science, allows non-technical users to do what otherwise requires advanced coding. The one main trend of the pandemic related economic downturn is that the companies thriving are those that are technologically advanced, who generally will have no shortage of coders and a reason to create their own analytics tools. I wonder if it simply requires more hands-on training to teach a “citizen data scientist” to use the tools, even if they are easy to use.
A dollar based net expansion rate of 130% is fantastic, but that only works to provide baseline growth if the businesses stay in business.
I’m guessing they were ultra-conservative with their guidance but not much has really changed in terms of the business outlook for many of their customers. Even if they come in at 40% growth ($115m), their Q3’19 and Q4’20 reports were incredible, and considering the economic outlook, I have a hard time believing they will be able to guide to very much growth. For them to reach 40% growth on the year ($585m) they’d then have to book $360m in the next two quarters.
Given the abundance of good companies that are widely expected to grow faster and may have business further accelerated by any ongoing pandemic (ZM, CRWD, DDOG, FSLY, LVGO, NET) or at least not appearing to have been materially hurt (OKTA, MDB), AYX is kind of lower down on the list for me.
I’ve lightened up substantially with only a 2% position remaining.
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Looks like data science might not be a priority right now: https://www.zdnet.com/article/developer-data-scientist-us-te……
In summary, is AYX’s product essential, or is it more related to business growth and expansion, which may be on hold right now?
If data science jobs in R and Python aren’t a priority right now, it could also mean that there will be more demand for Alteryx tools, which aren’t dependent upon one having expertise in R or Python. R and Python professionals aren’t cheap to hire. It’s aimed at citizen data analysts, the focus upon which may actually increase as hiring experts is less likely.
Alteryx also has little real competition and has established itself as the leader in its market. The margins are unsurpassed, the TAM is huge and growing, and there is a lot of optionality, especially with the new platform, that could play a big part in the short term performance of the company.
So it could be that companies that are hurting, as well as those doing well, as a result of the pandemic will show an unexpected increase in the need for citizen data analysts and the hit to revenues may not be nearly as bad as feared. Such a surprise, combined with Alteryx’s relatively low valuation, could very well make it better investment than you think. At least that is my thinking, which is why I haven’t reduced my position (19% position). So I hope that you’re wrong. The great thing is that one can own both Alteryx and Fastly.
DJ
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Reporting anywhere near $150M in Q2’20 revenue would be a significant accomplishment, given how conservative they were on outlook last quarter.
I’m sorry, but that was a mistake: a 40% YoY (Q2’19->Q2’20) revenue bump would be ~$115M, and not $150M. Sorry for the mistake.
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This comes down to timing.
When you have your retirement accounts with a 15 year horizon, COVID is an opportunity.
I spend most of my time wondering if COVID is blowing the S curve on certain companies and lagging others.
AYX has NO competition
If you want to TIME and EARNING chase. Then you sell.
Alteryx will reaccelerate at some point. But shutting down travel to a traveling sales team impedes a business. So don’t be surprised.
I have personally not made a single trade since March.
I’m up 120% in the year and grateful as hell.
I don’t own Zoom.
Alteryx is a superior business which any slowdown is due to sales motion, not product.
Yes I absolutely think many sticks might take punches in earnings expectations coming up.
But…I can’t and won’t time them market. Why bother.
Just a Fool
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I’m guessing they were ultra-conservative with their guidance but not much has really changed in terms of the business outlook for many of their customers. Even if they come in at 40% growth ($115m), their Q3’19 and Q4’20 reports were incredible, and considering the economic outlook, I have a hard time believing they will be able to guide to very much growth. For them to reach 40% growth on the year ($585m) they’d then have to book $360m in the next two quarters.
IRDoc, this is exactly what I’m thinking, and so well put. I really think we need to look at quarter to quarter (sequential) trends here, and not just YoY growth, to discern what’s happening. The massive growth they had in the last half of 2019 is likely going to make things even more difficult for them this year. They are difficult comps, but it’s not just that – it’s the fact that the AYX revenue trend isn’t like our other companies, where revenue grows steadily each quarter. There’s more seasonality to AYX’s revenue (I believe this has to do with ASC 606), and we haven’t yet seen what this current environment will do to their peak sales quarters. That’s what concerns me, as it’s hard to imagine either land or expand is as easy for them as usual this year.
We could be wrong, but the story makes a lot of sense.
Bear
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I agree with the discussion here and I’ll add some speculative numbers.
Let’s start with what we know:
• Second Quarter 2020 Guidance: Revenue is expected to be in the range of $91.0 million to $95.0 million, an increase of 10% to 15% year-over-year.
• (pre COVID) Full Year 2020 Guidance: $555.0M to $565.0M an increase of 33% to 35% YoY.
• most on this board think AYX is likely to beat the Q2'20 rev forecast: Let's assume AYX beats the YoY revenue forecast by 30%-40%, so Q2'20 rev could be in the range of $107M-$115M
AYX’s CFO mentioned in April of 2020 that their revenue had returned to Q2’19 numbers. Assuming things continued to improve and AYX Q3’20 and Q4’20 revenue is around what we think they might announce in Q2’20, suggest their 2H’20 revenue will be (again, using round numbers) in the range of $215M-$230M. Based on this, that would suggest their newly revised, 2020 (COVID inclusive) outlook of around $440M to $450M, which is a little over $100M less than the previous 2020 revenue outlook of $560M.
Another important (and new) consideration: I’ve mentioned that research suggests AYX is hiring, based on the number of their job postings , and I was encouraged by this. The important distinction is that this is not the same as hires. A friend pointed out that companies will often keep job postings open but not necessarily have the intention of filling those postings, at least in the near term, perhaps until the uncertainty of the situation improves, which I agreed with and got me rethinking my previous position on the job posting news. So the research suggesting AYX is hiring based on the number of their job postings and openings might not be relevant information in the evaluation of their near term outlook.
Summarizing: Of course, while the analysis above is very speculative, AYX is likely to beat their Q2’20 rev forecast of ~$95M, perhaps handily. But, and this could be an important consideration in how the market values AYX in the near term, the 2020 revenue outlook is likely to be reduced, even assuming modest growth in their Q3’20 and Q4’20 revenue numbers. As such, this might be viewed negatively by the market, again (and importantly), in the near term. Longer term, AYX’s business is strong and this potential set back is likely not related to their business fundamentals. This is environment driven and not influenced by the business side of AYX, IMO.
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Another point is AYX has always noted seasonality causing lower revenues in Q1 followed by acceleration the rest of the year. Therefore, COVID will unfortunately affect what have traditionally been AYX’s stronger quarters. That also means some tough comps the remainder of 2020. There is clear risk in how the market will react to that.
I’m expecting an upcoming beat. However, management comments will likely carry a little more weight with Alteryx than some others, at least with me.
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