Is Alteryx Stock a Buy?

Alteryx (AYX +0.00%) lost nearly 40% of its market value this year. The data science and analytics company started off the year strong, but its stock price plunged in February after it followed up its fourth-quarter earnings beat with soft guidance for the first quarter and the rest of the year.

That sell-off intensified when Alteryx's Chief Revenue Officer Dean Darwin resigned in late February after posting a racially charged tweet. Rising bond yields, which have sparked a rotation from growth to value stocks in recent months, exacerbated that pain. But now that Alteryx has dropped to a two-year low, is the stock finally worth buying again?

Image source: Getty Images.

What does Alteryx do?

Alteryx went public in 2017, two decades after the company was founded. After its IPO, it acquired several smaller companies -- including Semanta, Yhat, ClearStory Data, and Feature Labs -- to expand its ecosystem.

Alteryx's analytics platform consists of six core services -- Connect, Designer, Promote, Server, Hub, and Intelligence Suite -- which each specialize in different data-crunching tasks. It also provides web-based services through its Alteryx Analytics Gallery.

Like many other software companies, Alteryx uses a "land and expand" strategy. It "lands" a customer by offering a free trial for a single service, convinces them to upgrade to a paid plan, then "expands" by cross-selling more services or locking them into recurring subscriptions.

Alteryx's dollar-based net expansion rate, which gauges its year-over-year revenue growth per existing customer, has remained above 120% ever since its IPO -- which indicates that the strategy is still working.

How fast is Alteryx growing?

Alteryx's net expansion rate is impressive, but its revenue growth has decelerated over the past three years.

Data source: Alteryx. YOY = Year over year. *55% in older ASC 605 terms.

Its customer base has also been expanding at a slower rate.

Data source: Alteryx. YOY = Year over year. *55% in older ASC 605 terms.

Alteryx attributed that slowdown to fewer multi-year deals and a prioritization of gaining larger customers over smaller ones. It served 39% of the Global 2000 at the end of the first quarter, up from 37% a year ago, but those big clients still only accounted for 11% of Alteryx's total customers.

During last quarter's conference call, Alteryx management said its focus on gaining larger customers (likely with free trials) and the transition of its small-to-mid-sized customers to a channel-supported sales model (which could initially generate lower revenue) could both cause the company's net expansion rate to dip below 120%.

Alteryx expects its revenue to rise 14%-16% for the full year, but it expects its non-GAAP earnings to plunge from $65.5 million in 2020 to roughly breakeven levels. That gloomy forecast indicates its rising sales and marketing expenses will overwhelm its revenue growth, even as it boosts its annual recurring revenue (ARR) with stickier cloud-based subscriptions.

Competitors at the gates

Alteryx's slowing growth and rising costs suggest it's struggling to keep pace with competitors like salesforce.com (CRM +1.58%), which analyzes data with its Einstein service; C3.ai (AI 2.63%), which streamlines large companies' operations with its AI tools; and Palantir (PLTR +0.94%), the data-mining firm that serves both government agencies and corporate customers.

Here's how Alteryx's projected revenue growth and price-to-sales ratio stack up against those three peers.

Data source: Yahoo Finance, May 11.

Alteryx might seem like a better value than C3.ai and Palantir, especially if investors continue to flee pricier growth stocks, but it's arguably less appealing than Salesforce, a much larger company that integrates its analytics tools into its market-leading customer relationship management platform.

There are better tech stocks to buy

Alteryx's stock price plunged because its guidance couldn't support its valuations. It looks cheaper after that decline, but there are plenty of better growth stocks to buy following the latest sell-off in the tech sector.