Owning Microsoft, Amazon, or Netflix stock has enabled many investors to become millionaires. These companies started out small and became leaders in a massive market that enabled the stocks to grow over decades. Millionaire shareholders saw the potential early, bought shares over time, and held them for the long term.
Could Alteryx (AYX 0.06%) stock be a millionaire maker too? Let's dive into the business, look at its growth prospects, and check out the size of its market to see if this software analytics specialist has what it takes.
Making data analysts' jobs easier since 1997
Alteryx has built a $418 million revenue-run-rate business by selling subscriptions for its data analytics software. Its platform provides "code-free" tools for analysts to prepare, combine, and ultimately analyze large data sets from multiple sources across the organization. It can even be used by programmers and data scientists who use coding to perform more sophisticated number-crunching tasks. The software saves users countless hours of tedious prep time, allowing them to spend more time performing the real value-added work of analysis.
Once a company discovers the tremendous benefits the software provides, it will usually increase the number of users and use cases over time and might even upgrade to a higher-value subscription. Alteryx has achieved between 129% and 134% net dollar retention every quarter since it's been public, which helped fuel its amazing 65% revenue growth last year.
Since the company was founded in 1997, it has constantly enhanced its software, resulting in a robust set of tools that serve more than 6,000 customers today. But in some ways, this 23-year-old company is just getting started.
Numerous levers for growth
One target area for growth is the estimated 47 million spreadsheet users that work on advanced data preparation and analytics. CEO and founder Dean Stoecker calls these potential customers "disenfranchised analysts" because the spreadsheet has such severe limitations when used for analytics. These spreadsheet users end up wasting up to 26 hours per week on tedious tasks that could be automated or simplified by Alteryx's tools. One former frustrated spreadsheet user told Stoecker that the software literally "changed his life." Management estimates these users could unlock $24 billion worth of addressable market.
Non-U.S. businesses present another big opportunity. Even though Alteryx has customers in 90 countries, its international sales made up only 29% of total revenue in 2019. Its 11 offices throughout Europe and Asia will help grow its presence in those regions.
Additionally, the company is starting to focus on industry verticals such as healthcare, consumer packaged goods, and the public sector to win new customers. All in all, the company sees a $73 billion addressable market in big data, business intelligence, and data analytics (including the disenfranchised spreadsheet users). But it's likely that this market will only get bigger.
Analytics will be really big
It is difficult for us to imagine that ten years from now, customers will want higher prices, less selection, or slower delivery.
-- Amazon founder and CEO Jeff Bezos
Bezos' timeless quote highlights a stark reality that businesses need to deliver more value with fewer resources every passing year in order to be successful. Teams across the enterprise are encouraged to work smarter. Not every team will need a tool like Alteryx, but with more data being generated today than ever before, more areas of the business will come to depend on analytics. The image below is a slide that management shared in its analyst day presentation to show how customers across the organization are using its tools to solve complex problems.
In the fourth quarter of 2019, the company added customers from a number of different industries, including Caesars Entertainment, Canadian Pacific Railway, Emerson Electric, Halliburton, Komatsu, and Nasdaq. The breadth of new companies embracing the platform shows how universal the need for analytics tools has become.
With more businesses adopting Alteryx, more users discovering the benefits, and more use cases being solved with its tools, can its stock be a millionaire maker for shareholders?
The bottom line for investors
With annual revenues of less than 1% of its total addressable market and an incredible competitive advantage built over decades, this data analytics specialist has a huge runway ahead. The only caution with this growth company is that its lofty price-to-sales ratio of 20 could make the stock volatile over the short term. But for patient investors who are willing to build a position over time and hold for the long term, this gem has all the makings of a millionaire-maker stock.