With organizations migrating to cloud computing and other digital operating systems, the need for data analytics has been booming. Helping lead the charge has been Alteryx (NYSE:AYX), a software outfit that helps data analysts and scientists gather and clean up digital information -- what Alteryx calls Analytic Process Automation -- and then make decisions based on it. Sales have been booming in the last few years, and shares are up nearly 800% since the company's public debut in early 2017. 

In the early days of this pandemic, Alteryx has done well; its data automation platform has been in high demand as companies try to adapt to the times. It's still too soon to tell how much of the "new normal" will stick, but one thing's for sure: Data analytics is a staple in the digital age.

A man in a suit holding a tablet as a digital projection of a brain made of electrical connections hovers above the screen

Image source: Getty Images.

Fast growth, volatile stock

Data analytics companies garnered a lot of attention in 2019. Google parent Alphabet purchased Looker for $2.6 billion, and salesforce.com bought industry leader Tableau for $15.7 billion. And those left over notched massive growth. Alteryx specifically ended 2019 having brought in $418 million in revenue, a 65% increase. Pretty impressive, especially considering it built on a 55% revenue gain in 2018.

In the early days of the pandemic, Alteryx started the new decade strong. Sales grew by a massive amount again year over year, and the software platform continued operating at an exceptionally high gross profit margin (revenue less cost of the service). The dollar-based net expansion rate was 128%, implying that in addition to the company signing up new customers, existing ones spent an average 28% more with Alteryx than they did a year ago.  

Metric

Full Year 2019

Full Year 2018

Change

Revenue

$109 million

$76.0 million

43%

Adjusted gross profit margin

91.3%

90.5%

(0.8 pp)

Adjusted net income (loss)

($6.45 million)

$2.99 million

N/A

Free cash flow

$15.0 million

$14.5 million

3%

Data source: Alteryx. Pp = percentage point.   

While some investors would give pause due to the lack of bottom-line profits, that is by design as Alteryx dumps cash into sales and the development of its data science platform. And the company does remain in positive cash-generation territory, as measured by free cash flow (revenue less cash operating and capital expenses). 

In spite of all the growth, though, Alteryx shares have been stuck in volatile sideways movement since the summer of 2019. Much of that has to do with the high valuation -- another reason some investors may pause. Since profits are intentionally non-existent here, investors are left with the price-to-sales ratio (market cap divided by trailing-12-month revenue). Currently at 20.9 times price to sales, this is an expensive stock that assumes double-digit growth will continue for some time, and that those 90%-plus gross margins will eventually translate into big bottom-line returns.

Given the recent trajectory of its business, the high price tag could be warranted if investors are looking at least a few years down the road. 

AYX Chart

Data by YCharts.

Five years from now

An early indication that Alteryx will be able to sustain its momentum was its guidance amid the current economic downturn. Second-quarter 2020 revenue is expected to be 10% to 15% higher than a year ago -- a sharp slowdown from the rates of growth in the recent past. Full-year 2020 guidance also got the plug pulled amid the uncertainty.  

Nevertheless, in spite of businesses and consumers grappling with the economic effects of the coronavirus lockdown and competition from Salesforce's Tableau and other high-growth companies like Talend, Alteryx continuing to forecast double-digit expansion is impressive. There's a good chance momentum picks up again later as the crisis subsides, as many deals are simply being put on hold as organizations adapt to the fast changes brought on by the pandemic.  

In the meantime, though, Alteryx is well-positioned to ride out the storm. It's curtailing expenses and freezing hiring, and cash and short-term investments were $763 million at the end of March 2020 -- good for nearly two years of cash operating expenses. Besides giving Alteryx flexibility to navigate the current crisis, that's ample liquidity that can be used to promote growth through new product development or acquisitions.  

At some point, the dust will settle, and the world will move on from the coronavirus crisis, but there will be lasting after-effects. It's early on, but it appears one of those after-effects is that the world will be moving to modern digital operations faster than before. That bodes well for Alteryx as it helps organizations make sense of their new digital data.

Over the next five years, Alteryx has a good shot at growing its analytics services at a fast pace, and it should start churning out big profits as its business model matures.