What happened
Shares of Alteryx (AYX) climbed 17.7% last month, according to data provided by S&P Global Market Intelligence, following a quarterly report that beat analyst estimates for revenue and earnings. The company's sales growth was impressive, but its profitability really stood out, thanks to diligent expense management. This demonstrated Alteryx's ability to manage costs without sacrificing growth.
So what
Alteryx reported 71% revenue growth, which is fantastic, but somewhat misleading. Its annual recurring revenue (ARR) rose 31% over the prior year, and that's a more realistic depiction of the company's ongoing growth rate. The discrepancy between revenue and ARR is largely due to the company's ongoing transition to a subscription software-as-a-service model. Even that slower rate of expansion is still excellent in a shaky macroeconomic environment.
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Notably, Alteryx reported adjusted earnings per share of $0.84, which is 60% higher than consensus forecasts. The company's 2023 forecast shows that the fourth-quarter adjusted earnings were abnormally high. Still, there's strong evidence that the company's strategic expense management efforts are working, and that it's not impacting growth negatively.
Importantly, the company's net revenue retention was 121% last quarter. That means the company is driving significant expansion among its existing customers. That's an important indicator of customer satisfaction, economic moat, and ongoing growth opportunities. Alteryx indicated that its penetration rate among the largest 2,000 companies in the world is just under 50%, so there are plenty of new potential customers to complement growth in existing accounts.
Now what
Alteryx has excellent long-term demand drivers. It offers tools that improve the efficiency and quality of analytics for all sorts of organizations. The power of data has become self-evident in many cases, and Alteryx allows its customers to unlock that value without investing excessive resources. The latest quarter shows just how effectively the company has capitalized on those catalysts.
Nonetheless, Alteryx still faces short-term obstacles. In the latest quarterly conference call, the management team voiced concern over weakening economic conditions. It's seeing increased deal scrutiny and longer sales cycles. Nobody should be surprised if growth slows down in the next few quarters, and the company's forecasts reflect this likelihood.
For growth stocks like Alteryx, it doesn't take much bad news to create volatility. The stock's price-to-cash-flow ratio is nearly 75, so the stock could drop quickly if investors get worried about a slowdown. Long-term investors shouldn't be too worried about volatility over the next year, but it's important to consider before buying.
