Anaplan (PLAN) is far from a top performer in the software industry this year. The cloud-native enterprise planning tool crashed hard in the spring amid a general pause in corporate spending when the coronavirus pandemic started, and though it has rallied close to all-time highs again, shares are up "only" 18% so far in 2020.
Recent news indicates corporate spending is making a comeback, though, and I think Anaplan is poised to do well in a world post-COVID-19. Here's why I'm buying more.
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An industry peer signals the coast is clearing
Anaplan already did some heavy lifting to prove it remains on solid footing. Its revenue of $210 million through the first half of fiscal 2021 (the six months ended July 31, 2020) represents growth of 31%, a sharp slowdown from the 45% rate posted last year. However, on its last quarterly update, CEO Frank Calderoni and other top brass indicated that new customer deals that had been put on hold when novel coronavirus started wreaking havoc were warming up again. Full-year fiscal 2021 guidance was put back in place and called for 26% year-over-year growth.
I think this growth rate will ultimately be exceeded, and not just because Anaplan has already established itself as an under-promiser and over-deliverer in its short life as a public company. Fellow software outfit Alteryx (AYX) recently upped its guidance in grand fashion for the autumn quarter. The company now expects its revenue growth to be 22% to 24%, replacing lackluster 7% to 11% guidance provided a few months ago.
Granted, Alteryx is a different breed of software. It cleans up and analyzes digital data for use with other applications. By contrast, Anaplan is an enterprise resource planning (ERP) tool that stitches together an organization's data and uses machine learning and AI to help teams across the company make better decisions. It's not an apples-to-apples comparison, but the software suites address adjacent needs -- and one hinting at a resumption of customer activity bodes well for the other.
Plus, subsequent to its last quarterly update, Anaplan has made a number of substantive product updates. It added a tool called HyperPlan to its software suite, allowing users to modify a planning outcome over time to illustrate more complex models. Software integrations with applications from Microsoft and Amazon's AWS cloud computing segments were also added, and Anaplan also announced its first public cloud partnership with Alphabet's Google Cloud -- potentially opening the door to new customers and increased use of the Anaplan platform among existing ones. The same day the Google Cloud partnership was announced, Anaplan said it was expanding its relationship with energy giant Royal Dutch Shell to aid in its digital transformation.
Put simply, it appears the COVID-19-induced winter for enterprise software firms is thawing, and Anaplan looks poised to benefit.
Proven leadership and massive market opportunity: Check and check
Longer term, I'm loading up on more Anaplan because the ERP software industry is a large one ($40 billion to $50 billion in global spend this year), and is expected to double in size in the next five years, according to some tech researchers. Given the sad state of world affairs right now and rapid change brought on by technology, the forecast isn't out of the question. Anaplan's market cap is just shy of $9 billion as of this writing, so this is still a small and scrappy cloud-native disruptor of the status quo with plenty of upside potential.
One more point on Alteryx. Investors also cheered on a CEO succession plan involving a tech industry veteran. Anaplan already has a tech veteran at the helm. Calderoni was formerly CFO of Red Hat before getting acquired by IBM in 2017, and prior to that was CFO of Cisco. I have confidence in the management team's ability to navigate challenging times and keep Anaplan's growth story headed in the right direction as cloud computing and AI increase in importance. It isn't the cheapest of stocks at around 19.8 times full-year expected sales. But with a big and still-growing industry to disrupt and with $305 million in cash and no debt on the books, I'll be adding to my position in Anaplan in October.
