Following underwhelming guidance in its fourth-quarter results, Alteryx (AYX -0.10%) saw its stock price drop last week by more than 16%. Looking forward, new CEO Mark Anderson is hoping to improve the big data specialist's performance with a new marketing strategy and a focus on the cloud.

So is the stock pullback an opportunity to invest in Alteryx during its transformation?

Disappointing guidance

Alteryx addresses an attractive big data management market estimated at $49 billion. And that opportunity is poised to grow as enterprises digitize their operations. According to the research outfit IDC, the global amount of data should grow from 33 zettabytes in 2018 to 175 zettabytes in 2025, which corresponds to a compound annual growth rate of 26.9%.

Man touching cloud with padlock icon on network connection.

Image source: Getty Images.

Yet getting valuable outputs from such a quantity of information requires many different tools to prepare, process, and share data, which has attracted many companies wanting to address that large and expanding opportunity.

So Alteryx developed a differentiated offering with easy-to-use solutions that allow employees to perform big data activities with minimal knowledge and coding.

But after a few challenging quarters last year, as enterprises prioritized essential operations during the coronavirus-induced shelter-in-place orders, the company disappointed investors again with weak 2021 guidance because of transformation initiatives.

Management expects first-quarter revenue to decline to a range of $104 million to $107 million, compared to $108.8 million in the prior-year quarter. And with improving results through the year, full-year revenue should land in the range of $555 million to $565 million in 2021, which corresponds to a growth of 13% at the midpoint.

Granted, the company's diminishing contract duration lowers revenue recognition. If you consider annual recurring revenue (ARR), which better represents the value of subscription contracts by ignoring accounting rules that lead to volatile revenue recognition, the company's performance looks better. Management anticipates ARR at the end of 2021 to increase by 25% year over year to approximately $625 million.

Yet compared to the phenomenal performance of some other big data players, such as Snowflake, that guidance seems unexciting.

Focusing on large customers and the cloud

During the fourth-quarter earnings call, Anderson announced transformative steps to improve Alteryx's performance.

He first insisted on the need to update the go-to-market strategy by collaborating more with partners and building upon the success of the company's initial collaboration with the consulting outfit PwC, which accelerated some transformative projects.

In addition, Alteryx will prioritize business with larger customers. The result of that initiative remains to be seen. By focusing on larger enterprises, the company will reduce its opportunities to acquire more customers. But it should lower its sales and marketing expenses as a percentage of revenue, as addressing large enterprises requires fewer resources compared to landing many new, smaller deals. 

More importantly, Anderson also revealed Alteryx will finally focus on the cloud.

The previous CEO didn't prioritize any software-as-a-service (SaaS) offering because he estimated most of the customers' data stayed on-premises. Yet the shift to cloud computing seems inevitable, and cloud-native big data players have been growing at an impressive pace. For instance, Snowflake grew its revenue by 119% year over year to $159.6 million during the last quarter.

And legacy on-premises big data companies have already transitioned to the cloud. As an illustration, Cloudera updated its on-premises offering last year with a new hybrid cloud (any combination of public and private clouds) platform.

So Alteryx's increasing focus on the cloud seems late, and Anderson hasn't yet communicated any timeline for an updated offering. But at least the company is now heading in the right direction to capture more cloud opportunities going forward. 

Looking forward

The company's transformation will drag down results during the first half of the year, which led to the disappointing guidance.

Because of that underwhelming forecast, Alteryx's market cap is now 18.6% lower than one year ago. And thanks to the announced focus on the cloud, the company seems better positioned to address cloud opportunities in the medium term.

Yet the investment opportunity still doesn't look appealing enough for me. The stock is still trading at a high price-to-sales ratio of 16, which suggests the market expects strong revenue growth over the next many years. 

Given the company's recent weak results and ongoing transformation, significant uncertainties persist. For instance, the results of the new marketing strategy remain to be seen, and the product roadmap for cloud solutions has yet to be revealed.

Thus, investors should closely follow Alteryx's analyst day in a few months (at a date to be announced), as management will provide more information about the company's transformation initiatives. In the meantime, the stock remains too pricey for my taste, and I prefer to stay on the sidelines.

This article represents the opinion of the writer, who may disagree with the "official" recommendation position of a Motley Fool premium advisory service. We're motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.