Alteryx – Will It Be A Phoenix Or Some Other Kind Of Bird? (NYSE:AYX)

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Alteryx – Has it hit a speed bump or is it guiding to hyper-conservative levels?

Alteryx (AYX) has been one of those names that I had never contemplated selling. I had bought a significant position in the shares in the fall of 2017, and continued to maintain a substantial position, although I had trimmed some over time because of the need to maintain a balanced portfolio for my Ticker Target service. I have viewed Alteryx as being a company in the right space with strong user satisfaction and a powerful selling motion, and a pioneer in its space that has been well acknowledged as a category leader. Who doesn’t want to invest in advanced data analytics solutions. Who doesn’t want to invest in a company that formulated solutions for citizen data scientists. I happened to sell my entire position in the shares, more by luck and chance than because I had contemplated the quarter that the company reported on August 5, 2020. My sale was based on raising cash in the Ticker Target portfolio, as I contemplated a market that had become quite frothy and was not a call on the Alteryx quarter, or the outlook I had for Alteryx. And at the time I sold it, the shares had appreciated something like 7X and there is something comforting about ringing the register But really, the essence of the transaction was that I got lucky.

It has been almost 2 months since I sold the last shares of my Alteryx position. There has been a mini-correction in the IT space as a concomitant to some sector rotation away from the Information Technology space. Overall, Alteryx shares have fallen by as much as 38% since I sold the last of my position. Lately, with the return of concerns regarding persistent and even rising Covid-19 infections, particularly outside of the US, there has been a return to favor of “work-from-home” software companies. Trading stocks these days is often a matter of gauging analogs which are used by algorithmic funds to manage their portfolios. Algorithmic trading is said to account for as much as 70% of overall daily trading in stocks. While the business analogs between Alteryx and most stalwart remote work businesses are tenuous, at least to the mind of this writer, apparently AYX is perceived to have some similarities to names such Atlassian (TEAM) and Twilio (TWLO). The amount of compute power used to develop analogs and algorithms is far beyond that available to this older commentator-suffice to say that there appears to be a modest bid for AYX shares as I write this, and the bid appears to be based on analogs to work at home names.

AYX is not a work at home name, although its solutions can be used by remote citizen data scientists, so-called, to facilitate that paradigm. It has certainly faced headwinds from the economic contraction wrought by the pandemic. On the other hand, analytics as part of an overall digital transformation process, is likely to be a longer-term beneficiary of the trends set in motion by the pandemic. I am recommending purchase of Alteryx shares at or about current valuations at this time but not because of any correlation with demand from a work-at-home spike . The shares have been punished enough, and more than enough to account for the business conditions brought on by the pandemic. As the economy mends, demand trends that had been accelerating before the pandemic, will resume, I believe.

This is not a call on the results I expect to see Alteryx report for the September quarter. Alteryx has guided to revenues of $111-$115 million, or year on year growth of 7%-11%. Sequentially, that would be growth of about 18%. That doesn’t sound that terrible, until one looks at prior year results when growth was almost 26% between Q2 and Q3. The company has also forecast Q4 results which are not reassuring. While sequential growth between Q3 and Q4 is forecast to be 30%, it was more than 50% between Q3 and Q4 2019. Indeed, the specific numbers that the company has presented are that revenues will fall by 6% year over year. That is quite a comedown for a high growth company.

This article is a recommendation to start rebuilding or adding to a position in Alteryx. I want to be clear that while this is not a call on either Q3 or Q4 of 2020-Alteryx shares, even after their substantial fall, will not appreciate unless the company achieves results that are significantly better than guidance the company has presented. My best guess is that the company will do so, but of course I have no specific information to buttress that conclusion.

Compared to some other IT vendors, Alteryx can and has produced quite substantial upsides. For example, when Alteryx provided guidance for Q4-2019 it was about $130 million in revenues at the mid-point. The actual results surpassed that forecast by no less than 20%. There is a very specific reason for that kind of variance compared to forecast results: Alteryx essentially reports 35%-40% of its bookings as revenue in the quarter they are received and it typically forecasts rather conservative close rates relating to its forecast..

In a typical quarter, Alteryx receives 70% of its revenue from the balance sheet and from its RPO balance. In addition, the company expects that an additional 15% of its revenues will come from scheduled contract renewals. The company, therefore, is only forecasting that it will close a minimal level of net new business during this current fiscal Q3. This is a scenario that has been repeated again and again for Alteryx. It is why its quarterly growth pattern has been one of consistent over attainment. And while I obviously lack the information I would need to forecast how this quarter will come out, I think a reasonable betting man, looking at the results of other companies in this space and the overall economic macros being reported, might logically conclude that the odds favor AYX achieving an over-attainment this quarter. While at the end of the day, that really ought not to matter all that much, given that my recommendation is long-term in nature, I would obviously like to reenter this name with a tailwind to start off my new position.

It might be remembered that AYX achieved 75% revenue growth, to $156.5 million in Q4-2019 as its business accelerated in the last half of 2019. In that quarter, bookings rose to $290 million in total contract value, and for the full year, total contract value of bookings rose to $600 million. Self-evidently, Alteryx has notable bookings seasonality, and that is reflected as well in quarterly revenue because of the company’s revenue recognition model. Alteryx, because of its revenue recognition model, has struggled a bit to find a metric that accurately depicts its growth adjusted for contract duration. I personally always favor ARR as the most appropriate metric in evaluating a company such as this. The company reported ARR of $430 million exiting Q2, and it is forecasting continued growth of ARR of 30% through the end of the year. I do not know if the company will resume reporting bookings. I do not think Q4 was not really an incredible outlier and the trends seen then would most likely have continued but for the pandemic and its concomitant economic contraction. But that said, AYX does not need to book $290 million in total contract value in a quarter to support its current valuation, in my opinion.

Used properly, the Alteryx solutions generate exceptional ROI-indeed one has to use an analytic solution to solve some of the problems that Alteryx offerings can solve. So, as businesses return to something like normal, or a new normal, so too, should the company’s bookings and growth in its ARR. If that happens, the current valuation will look like an exceptional bargain in my opinion.

I have been asked by some subscribers to my Ticker Target service if it was time to revisit the name with a view towards rebuilding a holding. My answer is that I am ready to begin to rebuild an Alteryx holding. While the company CEO, Dean Stocker, didn’t specifically call an inflection point when he made a virtual presentation during the Citi Global Technology event on September 10th, I thought his comments were a bit more constructive than what he had to say in August during the earnings report covering the period through the end of June.. I have thought, and continue to think, that the analytics space is going to be a priority for users for many years to come. And I haven’t seen anything to dissuade me from the viewpoint that Alteryx is, and will continue to be the leading company in the space.

The fact that it continues to sell its offerings at $5k/seat, even during the pandemic, strongly suggests that user satisfaction and reputation is very high-when some observers/commentators talk about Tableau/Salesforce (CRM) or Microsoft Power BI (MSFT) as competitors, they seemingly ignore the yawing gap in price and functionality between offerings that cost a few dollars/month and offerings that cost $5k/year.

Conference call scripts are usually thought to be the equivalent of commercials for the company presenting. That is their rationale and often the commercial aspect of the presentation can make them less than ideal for an analyst. But that said, they can contain nuggets of information well worth considering. My case for Alteryx is based on the fact that it sells what are very high ROI solutions which please users/buyers and typically lead to expansion in terms of seats and sometimes in terms of modules. The issue with Alteryx is that because of the economy some users have been reluctant to expand their seat count-and to me that is understandable. But this is what usually happens,

” While we see incredible ROI stories every quarter, in Q2 two stood out. The first example was like so many activities during this pandemic delivered virtually in a webinar in early July. In this session, Neil Leibowitz, Vice President of Tax at SiriusXM described the journey his tax team had in landing and expanding with the Alteryx APA platform. It began in Q3 of last year with an adoption license to create efficiencies and compliance in provision process along with developing cash models for the complex tax of federal and state apportionment. Neil stated that “Alteryx was easier to use and more likely to be adapted by a larger audience”.

Early use cases that drove hundreds of hours of savings led to a third expand in Q2 of this year to support shared services and accounting operations with a focus on automation and its ROI. The business case for analytics process automation was defined in 157 use cases with potential savings of more than 9,200 hundred hours annually. In a period of just 90 days, they automated more than 40 used cases and contributing more than 2,500 hours of annual savings. Over their short nine-month journey of transformation Neil indicated that COVID has successfully forced them to think more critically through a financial lens to justify technology investments.”

I have heard similar stories from many other industry contacts. The reason I believe that Alteryx had achieved the growth it enjoyed 9 months ago and before was pretty simply because it was able to offer potential clients very strong ROI. This reference from Sirius is not a particular outlier and it represents the kind of thing that most larger customers have to do. And it also explains a bit why Alteryx has seen its growth compress.

Alteryx solutions save client hours-that is a very common outcome of its adoption. Most of the time, that kind of ROI is something that is very appreciated and easy to understand by enterprises. During this current part of a business cycle, that is not always the case. Many companies have had to make layoffs in administrative staff. So, they are not looking to save hours when they are cutting back on administrative staff in any event.

The current AYX forecast is based on the state of business conditions that led to lay-offs of administrative staff. In that environment, saving hours does not create ROI. When the environment changes, and I believe it is currently in the process of doing so, the ROI for many projects involving Alteryx will rise to historical levels, and sales cycles will shorten and upsells and expands will resume their favorable trends. Judging Alteryx by what happened in the quarter that ended in June does nothing to describe the outlook for the company as the economy slowly returns to a more normal pattern.

Analytics can be a complex space for investors to decipher. Some of the analytic tools that are offered are quite basic. These tools involve basic data integration and preparation capabilities, tools that allow for the graphical display of data and tools that facilitate simpler queries. These are the tools available from Tableau and Microsoft BI-and for that matter from many other vendors. The category has been around for some time now, and there have been generations of technology in the space.

But while these tools are inexpensive, and learning to use them is pretty straightforward (I can actually use Tableau), they are not adequate to solve the kind of business problems that most enterprises look to solve using the oceans of data they have available. Alteryx’s corporate slogan is ”the art of solving,” and that is really what distinguishes Alteryx from its best known rivals in the space-although they really do not act as rivals for the most part. Even after all the hype and tons of electrons questioning some Alteryx/Tableau rivalry, the two companies still have a tactical alliance and often co-sell. Alteryx doesn’t offer any visualization technology and Tableau’s analytics-well as I said, I can use it which should suggest something to some readers.

Many organizations are looking to find deep relationships in their data. In other words, they are looking to determine what is really correlated with what. This can be a very daunting challenge to solve, and it can be difficult to frame queries, let alone find tools that help analysts figure out where to look and determine which variables amongst thousands really have relationships.

A fairly typical Alteryx use case documented by the Alteryx community relates to a project undertaken of an industry consultant called HAI Analytics on behalf of the National Center for Education Statistics. The project was to determine the student retention rate in order to maximize tuition income. The project involved predictive modelling using the Alteryx Designer tool. HAI helps various institutions model student retention and then uses the predictive modelling function to determine the increase in retention by increasing financial aid, and providing other financial incentives. Most of the data necessary to “solve” the question already exists in different persistent data sources. One task is to integrate the data from the different sources so it can be used effectively. Once the data is integrated, some way has to be found for testing the impact of aid adjustment.

Neither Tableau or Power BI currently is able to deal with this type of query/model. There are other modelling tools that exist, but one of the keys offered by Alteryx is the combination of data integration and predictive modelling on a single platform with some level of automation. And the further advantage is that a non-data science professional who is more familiar with the business issues, is able to undertake creating a model and developing an answer that maximizes net tuition income after expanding the student aid funding.

While Alteryx has reported some elongation of sales cycles, and some organizations that have not gone very far with analytics are pausing its wide scale deployment, I think it is pretty straightforward to suggest that the rising use of analytics is inevitable and that growth in demand for complex analytics solutions will re-accelerate sharply as the economy stabilizes and starts to see growth closer to the trend line. The value of making better decisions-or offers or many other kinds of choices presents enterprises with an exceptional opportunity to improve their efficiency, improve their competitive positioning and to best leverage their capabilities. The pause that Alteryx has seen and may still be seeing in growth in demand is a pause, and is almost certainly not any permanent step down in any long term growth rate. The digital transformation that can be achieved using analytics has too high of an ROI for it not to be a priority for most institutions.

Queries can get far more complex than the examples I have provided; Alteryx tools were partially designed to solve geospatial queries such as those involved in exploring for oil and gas which are far more complex as can be imagined , and in such circumstances, the tools offered by Alteryx tend to have specific advantages in terms of speed, accuracy and discovery for many users.

As I write this, Snowflake (SNOW) has recently gone public. Some readers have queried me (no pun intended) on the relationship between Snowflake and Alteryx. Let me say-they are not competitors. Their use is much more likely to be complementary. The Snowflake database is far more efficient for data warehouse uses than legacy data warehouse solutions and is self-evidently providing users with a multi-cloud experience they desire which cannot be done with the data warehouse solutions offered by the most well known of the cloud vendors.

Here is what the CEO of Alteryx most recently said about Snowflake, “We love what they’re doing. We think that they’ll have a fabulous IPO. We think, it creates another tailwind for us. What — as a persistence layer, what they want is compute loads. We make it easy for people to get compute load efficiency in Snowflake. We have several hundred customers, joint customers without having a partnership, without doing go-to-market execution together. And so, we’re trying to figure that one out with them.”

I often write to subscribers that I tend to view guidance and conference call commentary as not necessarily the gospel when it comes to evaluating an enterprise. And yet, I do spend quite a bit of time studying a transcript and sometimes visiting with CFO’s regarding the precise meaning of their comments. One of the impediments I have had in terms of taking advantage of the obvious opportunity on Alteryx shares was the way the company chose to tee up its guidance. Not only was the guidance itself very off-putting, but the company’s commentary-at least as I look at it was worse.

Since Alteryx reported its results, many IT companies have reported. Most of them had better quarters than they had forecast, but the so too did Alteryx-although its beat was proportionately quite modest. Most of the companies that reported continued to provide conservative guidance, although few did so to the extent of weak guidance provided by Alteryx.

Almost no companies in the space provided guidance for negative growth in their quarters at the end of the year. Some of that relates to the way Alteryx makes guidance forecasts which really is not based on a traditional definition of what that term implies and some of that is a function of the huge over attainment Alteryx achieved in its Q4-2019 results. But that said, the commentary that Alteryx provided back in August was less than insipid, and quite at odds with the commentary provided by almost every other IT vendor.

Specifically, the CEO said, “ Based on what we see today, we do not anticipate a material improvement in business conditions during 2020.” And the CFO, expanding on that comment said, “Now turning to our outlook. The current macroeconomic environment continues to be in the state of turmoil and we expect conditions will remain fluid. Taking this into account. We’re providing revenue, operating income and EPS guidance for Q3 consistent with historical patterns. We’re also providing a full year outlook for revenue and ARR.”

One issue that has been a factor for many IT vendors has been one of contract duration. During the pandemic, many customers have chosen shorter contract terms, and most vendors, including Alteryx have obliged. Alteryx has offered its users what it calls adoption licenses. Adoption licenses increased by 60% year over year and more than 100% sequentially. Eventually adoption agreement typically convert to normal business arrangement. This has been a way of supporting users during these trying business times. But to some extent, adoption licenses weigh on certain metrics such as the DBE ratio. If the economy improves, and conversion to normal terms transpires, Alteryx will see accelerating growth. That is part of what I am counting on to happen.

Most IT vendors, and particularly those in the highest growth cohorts commented that they had seen turns in terms of demand starting in May/June and continuing into September. Until now, I have been unable to overcome those kinds of comments that Alteryx has provided that do not call out any demand inflection; if Alteryx hasn’t acknowledged an inflection point in its results, it is hard for me to call a turn without any specific information.

But one thing I have seen is increasing evidence in a turn in the economy after a bit of a step back in July. The NYS manufacturing index was particularly strong. The Wells call on growth was also encouraging. And even such minor events as the Citibank delinquency rate suggest a healing economy with growth starting to accelerate. As I will explain in the course of this article the business outlook for Alteryx has been one more affected by macro headwinds; as winds veer around to a positive direction, I believe they will benefit Alteryx and do so noticeably, given the company’s very cautious guidance.

At the moment, and leading to a decent set-up in terms of share price performance, I have been surprised that no one has chosen to write about Alteryx a view toward raising their rating. There are apparently 15 analysts who forward their recommendation to 1st Call. 11 have buy rating on the name, must of those have price targets 50% or more above the current price for Alteryx. That is unusual these days, when so many of IT names are selling well above the price targets of analysts, regardless of how they have chosen to rate the shares.

I did think that some of the commentary provided by the CEO in his appearance at the Citi investor conference was a bit more optimistic than what had been said by Alteryx management during their August conference call. Specifically, he talked about his view of the market that is reflecting more visibility,” I think that we’ve guided to what we can see in the marketplace. There’s some improved visibility although not a ton coming into Q3,” That said, the CEO called out a study from Gartner that said that analytics spend would be flat this year compared to growth of 18% last year. That study was done at a point in time-what it did not provide was expectations for growth in analytic spending in 2021.

What’s different about Alteryx in terms of its business rebound than other IT vendors?

I think most readers will recognize that many IT vendors, although far better off than other business segments, have seen the contracting economy upset their growth plans. Many, many times in the course of evaluating IT companies, I come across those who are going through a dreaded sales execution challenge. It might sound as if sales execution is something that can get fixed rapidly, but that is just not the case. Fortunately, that is not the issue that Alteryx faces. It has a well-organized and disciplined sales process and it has been able to attract and retain a solid cadre of sales personnel who report positive experiences in terms of representing the company and its solutions.

One of the things that is quite different when it comes to Alteryx is their revenue recognition policy. There is nothing non-standard about how revenue is recognized for this company, but as has been observed in the past, the company does recognize 35%-40% of its bookings as revenue in the quarter they are received. Most other companies using a subscription model, probably recognize no more than 2-3% of the total value of a typical transaction in the quarter it is signed. Of course, over time, revenue recognition evens out, but for a company with the growth trajectory this company has had, it creates a picture that can show more rapid growth than would be the case for other companies with a SaaS revenue recognition model.

That has led in the past to some very strong quarterly results that might be discounted by analysts. As mentioned earlier, in Q4, 2019, Alteryx reported 75% revenue growth. That was a product of extremely strong sales execution in the quarter (as mentioned earlier, bookings rose by 82% in that quarter and were close to double the level of reported revenues), but also a product of slightly longer duration in terms of in-quarter bookings.

In addition to the issue of revenue recognition for Alteryx relates to the issue of expansion. Earlier in this article, I quoted commentary about a typical expansion deal for Alteryx with Sirius Satellite. That kind of evolution is how expansion deals have unfolded for Alteryx in the past.

Most companies have and have had some analytic capability. What they do not have is a paradigm that provides full blown, high-end analytics access to most of their employees who could use that functionality. I think it is important to start by understanding that what Alteryx needs to sell are deals in which large enterprises commit to buying thousands of seats for employees whose primary function is not that of a data scientist. Since Alteryx has been public, the company has talked about an addressable market of 27 million+ of what it calls citizen data scientists. The issue for Alteryx is that not all of its customers can afford what it sells all of the time, and it can be hard in a severe economic contraction for potential users to justify expanding their use of Alteryx.

Many Alteryx expansion deals have been justified because they substantially improve the productivity of citizen data scientists-that is what happened at Sirius. But in an economic contraction where layoffs are and have been substantial, the ROI or the actual savings from some Alteryx based projects is not immediately realizable. And some users have chosen to elongate the tempo of providing all of their employees with analytic capability, simply because they have chosen to delay most corporate initiatives that are not specifically connected with immediate cash generation or data security requirements.

Finally, and perhaps not really so different for this company, is the rather severe impact of economy on smaller Alteryx users-its commercial sector. This is not all that different than the kind of results reported by many other IT vendors-again what makes it a bit different for Alteryx is that the relationship between bookings and revenues is more immediate because of the revenue recognition model, and to a certain extent, because bookings within the company’s commercial user segment have declined from such elevated levels. In some cases where there was but a single Alteryx developer, in an organization, that relationship was paused, and similarly to what was reported by Slack, for example, the overall churn within the smaller users was higher than historical patterns. Alteryx indicated that it has redeployed some sales resources from its commercial to its enterprise business segments-it is possible that this will have some positive impact that might be seen when the company reports its Q3 results.

Summing up, Alteryx has experienced some headwinds from the effects of the contracting economy that have knocked down its growth rate substantially, from levels that were exceptional at the end of 2019, to about 30% in terms of ARR projected this year.

I like to look at bookings growth which is a function of reported revenues, and the reported change in RPO. Bookings growth was essentially nil this past quarter and the company is not forecasting bookings growth in either of the next two quarters. The specifics of how that seems likely to happen indicate a transitory phase that has nothing to do with the global acceptance of analytics, the company’s competitive position or the company’s selling motion. It really doesn’t make great sense to evaluate Alteryx and its prospects based on the trough of activity. I think it makes much greater sense to look ahead and see what is most likely to happen to Alteryx and evaluate what its shares might be worth in a recovery scenario. The company is managing expenses prudently, and is essentially forecasting minimal growth in non-GAAP expenses sequentially.

What’s happening these days at Alteryx

I have discussed lots of numbers and references in this article at what no doubt seems great length to some readers who have managed to stick with the prose. Some of this might lead some readers to forget that this is an operating company with a product strategy that I believe is widening its competitive moat and increasing user satisfaction.

For example, modelling is a typical concomitant of an analytics paradigm. The company has embraced AI and code free technologies to assist citizen data scientists in creating sophisticated models. Almost all enterprises have individuals looking to model various phases of business and this capability has probably been one of the most sought after new function that Alteryx has made available.

The company also introduce an Analytics Hub is designed to automate some of the analytic processes for smaller work groups and to integrate with both Connect and Promote and to provide automated modelling capabilities. Finally, the company introduced what is called Alteryx Multi-threaded Processing (AMP). As analytics has developed a need for faster processing speeds has become more substantial. Alteryx, with this new release, is allowing its users to use massively multi-threaded processing. This capability speeds up processing in 4 MB packets and that facilitates dramatic performance improvements for many analytic applications.

Many readers, when they think of Alteryx, probably do not appreciate the complexities and the elaborations that can be done with analytics. When investors look at a “land and expand” paradigm for Alteryx in particular, they may not realize just how complex an enterprise analytics framework can be. Prior to the pandemic, Alteryx had been achieving a DBE ratio of 130 or a bit higher. That has fallen to 126. But what is interesting is that looking at the DBE for the Global 2000 users, the ratio was still at 137 last quarter. In other words the Alteryx land and expand strategy is working for users who have the resources to look beyond the economy of the pandemic. When the churn and downsizing of commercial accounts abates, Alteryx clearly has one of the better longer-term growth opportunities when compared to most other enterprise software vendors.

The Alteryx business model and its valuation

I have commented in the past that many IT companies have accelerated their path to profitability by themselves reigning in the growth of operating expenses. Alteryx was able to improve its margins in Q2 at least sequentially, but did so because its costs fell by a greater percentage than revenues. That is not usually what I mean when I comment about an accelerated path to profitability. Management did not speak of any unusual expense constraint strategy going forward, and it did not provide operating expense guidance for Q4. I am inclined to believe that the company will continue its spending trends to take advantage of the opportunities that exist to expand its product leadership.

Alteryx has a very high gross margin which has been close to 91% for several quarters. The company spends lots on IP and its has some unique offerings that have allowed it to deliver value such that pricing is seldom a gating factor in closing a deal.

Last quarter, non-GAAP operating expense rose around 20% year over year, while revenues rose a bit more than 17%. On the other hand, non-GAAP expenses fell by about 14% sequentially, while revenues fell by 11%. This allowed the company to report marginal profitability for the quarter. The company is forecasting somewhat better operating margin trends in Q3, with revenues rising about $17 million, or about 18% sequentially, while non-GAAP operating expenses are forecast to rise by about 11% sequentially.

Overall, last quarter the company incurred an R&D expense ratio of about 21% compared to 18% the prior year. The sales and marketing expense ratio was 52%+ last quarter, compared to 55% in the year earlier period. I believe Alteryx has a business model with lots of potential leverage; as churn declines and expand revenues improve, I expect the trend towards a lower sales and marketing expense ratio will accelerate and to be the major source of future operating leverage.

To wrap up here I think readers need to consider the company’s relative valuation metrics. Prior to the advent of the pandemic, and the economic contraction associated with it, I think most analysts had expected Alteryx to grow at hyper-growth rates for the foreseeable future. The company provided guidance at the start of this year for growth of 35%. At the start of 2019, the company had forecast growth of 38% and it wound up reporting 65% growth for the full year. Prior to the advent of the pandemic, I imagine most holders, and certainly this writer, expected that Alteryx would exceed its estimates by a noticeable amount as has been the case for quite some time. I know that I had been estimating 3 year growth for Alteryx of nearly 50%.

Currently, the 1st Call analyst consensus is almost exactly in line with company guidance. Just on the past record, that makes little sense. This company certainly uses a methodology in presenting guidance that is far more likely than not to be exceeded. The 1st Call consensus for 2021 is for revenue growth of 27% or about $500 million in total.

Currently, Alteryx has an enterprise value of about $9 billion. While I certainly have no way of determining a specific growth inflection point, I would be surprised if there wasn’t a return to historical growth patterns over the next 2-3 quarters, and I certainly wouldn’t be shocked if the first signs of growth inflection weren’t seen in the current quarter. Overall, I have used a 4 quarter forward estimate of revenues of $575 million, and that is probably 20% above consensus values for that period.

While I have trimmed my 3 year CAGR estimate to 42%, the reality is that if the economic environment reverts to the growth pattern of the end of the last decade, my guess, as I have presented in this relatively lengthy article, is that growth will average higher than that forecast and certainly decisively greater than the 27% growth presented as the 1st Call consensus.

As subscribers realize, I look at valuations using my own estimates for revenues and a CAGR which I then compare against a best fit line. Alteryx, using my estimates for revenue and CAGR as detailed above is at the absolute greatest discount in terms of EV/S when compared to any other name I follow in the low 40% 3 year CAGR growth cohort, with a discount slightly greater than that of Elastic (ESTC), Anaplan (PLAN) and Smartsheets (SMAR). Interestingly, AYX shares are valued at about average in terms of EV/S for a growth rate of 27%. But at my estimated growth rate of 42%, the shares are more than 40% below the average as defined by the best fit line.

Alteryx is marginally free cash flow positive, and that is about average for its valuation. The company did see positive trends in deferred revenue, but those were not matched by RPO growth. This company, in a different economic environment, will generate cash flow at decent rates. Again, adverting to Q4-2019 for comparison, the company was able to report a free cash flow margin of just under 10%. I have chosen to use a 2% free cash flow margin in my valuation input. That brings the company to just around average for the growth cohort I have forecast.

I am recommending to subscribers and to other readers that this is a good time and a good entry point for Alteryx and I see the company returning to hyper growth as the economy heals.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in AYX over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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