For a long while, shareholders of Alteryx (AYX) probably thought the company could do no wrong. The ride wasn't always smooth, but in the three years leading up to mid-August, its shares had increased sevenfold in price. The company's data analytics platform was in high demand.

Then, it felt like the wheels came off. The company reported second-quarter earnings that -- on the surface -- were fairly strong. But a peek under the hood reveals unexpected weakness. The stock fell as much as 37% over the ensuing months. And just last week, the company announced founder Dean Stoecker was stepping down from his role as CEO.

It all leads to a simple question for growth stock investors: What the heck is going on at Alteryx?

Depressed young businessman in formalwear keeping head in hands while working in the office

Image source: Getty Images.

Quarterly results weren't bad

If you only looked at the headline numbers the company provided in August, the picture at Alteryx seemed pretty good. Its earnings report noted:

  • Annual recurring revenue -- sales from the high-margin part of the business, which helps customers comb through mounds of data -- was up 40% year over year.
  • Customer count had expanded by 27%.
  • Dollar-based net retention clocked in at 126%.

For perspective on that last bullet point, dollar-based net retention (DBNR) filters out the effect that new customers have on business. Instead, it measures the amount of revenue Alteryx collects from the same cohort of customers from year to year. Therefore, Alteryx is not only holding onto its customers (DBNR near 100%), it is getting them to spend 26% more every year. That's impressive!

The devil's in the details

But there was one big metric that scared investors: remaining performance obligations, or RPO. This relatively new accounting metric measures the amount of contracted revenue that Alteryx is all but guaranteed to realize in the future. It is a powerful way to measure the momentum of the business.

Below, we have a chart showing the company's RPO over the four quarters of 2019. The blue represents total RPO, while the red represents RPO the company will officially recognize within the next 24 months.

Chart showing RPO at Alteryx in 2019

Chart by author. Data source: SEC filings. Figures in millions (rounded to the nearest million).

As you can see, there were solid trends throughout 2019. While the big boost came in the fourth quarter, Alteryx solidly added to its pipeline throughout the year. On average, total RPO grew by 24% per quarter.

Then, the pandemic hit. Here's what results look like when we throw in the first two quarters of 2020.

Chart showing RPO at Alteryx over past six quarters

Chart by author. Data source: SEC filings. All figures in millions (rounded to the nearest million).

The slowdown is rather stunning. While many software-as-a-service (SaaS) companies have seen their business boom as vast numbers of companies transition their systems to the cloud, Alteryx's RPO remained basically unchanged for six months.

On the company conference call, Stoecker offered some color:

We have reassigned some of our reps from the commercial teams to our enterprise and customer success teams to help support larger expansion and customer renewal activity.

This struck me as surprising. Not only was Alteryx saying there was no growth with the small and medium-sized businesses (where those reps were coming from), but the company was allocating resources specifically to get big customers just to renew with Alteryx!

And after digging a little, that DBNR figure looked a little less impressive. It turns out it was an average of the quarterly DBNR over the past four quarters. This means that the impressive fourth-quarter result seen above was still included. As best I can tell with some back-of-the-envelope math, the DBNR fell at least 8 percentage points from the same time last year.

What does it all mean?

For me, there's one big takeaway: Alteryx is much more of a "luxury" purchase for organizations than a necessity. As a non-techie myself, I had assumed a platform for big data analytics would be invaluable to clients. I was wrong.

I wasn't financially burned by the misreading of the situation: I was never an Alteryx shareholder (though that was just as much due to laziness as anything else). 

I still think this company could be a great investment. The market seemed to like the idea of Stoecker moving into an executive chairman role and Mark Anderson taking over as CEO. Management also announced that it believes there won't be as steep a slowdown as originally expected in the current quarter.

For the time being, I'm happy to watch this story develop from the sidelines. If, however, you'd like to get a SaaS analytics platform on sale (at least compared to its share prices this summer), it might be worth kicking the tires on Alteryx.