Since I bought Alteryx (AYX) for my TAZR Trader portfolio in late May, I've produced several research articles and video reports on this amazing big-data "analytics engine."
And since Alteryx just delivered another strong beat and raise quarter, which will keep it a Zacks #1 Rank (Strong Buy), it's time to recap the investment thesis and the opportunities ahead for the company.
Here's what I told my members last Wednesday night after the AYX report...
Right now, let's get to our all-star earnings player, Alteryx (AYX)!
We got a beat and raise, though Q3 EPS could be softer than expected as the full year powers through to 47-cents vs consensus of 43c.
Alteryx delivered Q2 EPS of $0.01 vs expectations of a 6-cent loss.
Even better, revs came in over 7% higher than consensus at $82M vs $76.5M!
The slight "wince" on the guide was management seeing Q3 EPS 6c-9c vs. consensus 13c. But as noted above, the full-year guide is a range of 44c-50c.
And the revenue guidance still maintained an upward trajectory with Q3 seeing $88-91 million vs. consensus $87.5M.
Full-year rev guide is for $370-375 million vs. consensus of $360M, representing a blistering 83% annual growth in sales.
Key highlights of the business expansion...
**Added 305 new customers in Q2 to hit 5,278 customers, a 34% increase from Q2 2018.
**Achieved a dollar-based net expansion rate (annual contract value based) of 133%.
**Large contract momentum persists with a 50%+ increase in deals over $250,000.
**Doubling of contracts deals over $1,000,000.
"Our forward momentum continued in the second quarter highlighted by revenue growth of 59% year-over-year and net expansion rates of over 130% driven by both strong market tailwinds and solid execution,” said Dean Stoecker, CEO of Alteryx, Inc. “We continue to be humbled and amazed by the innovative ways our customers are leveraging the Alteryx platform to transform their business in remarkable ways.”
(end of TAZR notes from July 31)
That last sentence from Dean Stoecker is a key ingredient of Alteryx success. I learned this when I was studying the company platform and customers in early June during their annual user-conference Inspire in Nashville. You can learn more about that in my June 12 article and video...
Big Data Chaos: How Alteryx (AYX) Creates Raving Fans
In this piece I explain that there's a new gold rush going on inside of companies as they either mine their data, or get permanently disrupted.
Analysts React to the Quarter... and the Valuation
I've also produced many reports for my subscribers on why the Software industry commands such high valuations, with recent IPOs Zoom (ZM) and Slack (WORK) holding price-to-sales ratios near 40X.
The biggest factors are very high growth rates of 50-100%, high gross margins, and a general sense that Software applications are virtually unlimited in their scope to invent new solutions that serve unique niches and create raving fans.
So as Alteryx soared last week to new highs after earnings, I carefully reviewed the analyst reports to see how many would raise their valuation targets for AYX, and to what magnitude.
I came away with an even mix of those who believed the company could trade at 20X sales for its unique growth and those who didn't believe it should trade over 15X. Thus, I decided to take 50% gains on just a portion of our AYX holdings. Here's what I told my group on Thursday after earnings...
AYX is blasting off to new highs and is poking its nose above $130 as I type after lunch.
I'm taking profits on a small piece (1/3) above $130 just to get you thinking about doing the same.
But first, consider the range of views from i-bank analysts, some who clearly get AYX and some who still don't (mostly on the valuation at over 15X sales)...
Here were price target (PT) moves before earnings from three banks who clearly "get it"...
Cowen: PT to $137 (this late June move made them the high Street target)
Citi: PT to $153 (only a week before earnings, stealing the spotlight from Cowen)
Needham: PT to $139
And here's a quick sampling of who gets AYX and who still doesn't after earnings...
Get It (on underappreciated niche growth)...
KeyBanc PT to $145 from $123 on 59% yoy rev growth to $82M, 7% beat. Analyst Brent Bracelin reiterates an Overweight rating.
BofA/ML: PT to $140 from $126
Don't Get It (on valuation)...
Wedbush PT to $123 from $93 after "impressive" Q2 and raising full-year guidance by 15%. Analyst Steve Koenig reiterates a Neutral rating.
Raymond James remains Market Perform as the stock valuation approaches 20X sales.
And the JPMorgan analyst reluctantly raised their PT to $100 after earnings.
DA Davidson: Analyst Rishi Jaluria raised his price target to $123 after its "strong" beat-and-raise Q2, citing traction in the company's Enterprise sales, 100% growth in 7-figure deals, and potential for more expansion in its APAC and LatAm markets. The analyst contends that Alteryx continues to benefit from the adoption of cloud data warehouses but keeps his Neutral rating with a view that shares are "fully valued" at a 16-times multiple for enterprise value to expected 2020 revenue.
The analyst valuation math of 16X is based on the the current $8 billion market cap and the highest Street revenue estimates for next year near $500 million.
If we just used this year's projected $375 million in sales, the multiple is over 21X.
Finally, Oppenheimer analysts loved the quarter and growth outlook but maintained their PT at only $130, citing longer-term competitive pressures as more BIA (business intelligence analytics) vendors add data prep, machine learning, and automation functionality.
(end of my TAZR member notes from August 1 to explain my small cashing of some chips)
Regarding competition, here has been my stance: Microsoft (MSFT), NVIDIA (NVDA), and IBM could and should all be building their own data engines for customers to use. But if they are not, they could not do better than buying Alteryx and their raving fans who can't imagine using another platform to mine and model their data.
Yes, the valuation is rich in AYX. But big data, cloud SaaS, and the analytics they require comprise a rapidly growing market with estimates from Statista suggesting it could be worth over $250 billion by 2022.
And if you watched or read my Big Data Chaos piece linked above, you heard me talk about how AYX uses machine learning to make the platform faster and more powerful for customers. This is essential to automate and train the power tools that data workers need to plow through mountains upon oceans of information.
AYX is a leader in the use of machine learning automation. And thousands of companies who are still drowning in their data need these tools.
When tariff battles flared up and tanked the stock market late last week, I re-posted an article/video on Twitter emphasizing that big data analytics is immune to trade wars because corporations are way behind finding and harnessing their "dark data."
Here is that piece from June featuring a study by AYX's only real competitor Splunk (SPLK)...
Dark Data: Innovative Companies and Knowledge Workers Are Diving Into the Abyss
Recent survey of 1,300 business and IT leaders reveals that over half of their data is unknown and untapped.
Bottom line on AYX: Be a buyer on dips under $120 -- if we get any!
Disclosure: I own AYX shares for the Zacks TAZR Trader portfolio.
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