Alteryx's (AYX) stock price plunged 19% on April 28 after it posted a mixed first-quarter earnings report. The analytics software provider's revenue rose 23% year over year to $199 million, which missed analysts' estimates by $1 million. However, it more than halved its adjusted net loss from $27.3 million to $13.2 million, or $0.19 per share, which easily cleared the consensus forecast by $0.07.
Alteryx's growth rates seem stable, but its gloomy guidance rattled investors. It expects its revenue to only rise 0%-2% year over year in the second quarter, compared to analysts' expectations for 14% growth, and said it would lay off about 11% of its workforce to cope with that near-term slowdown. Does that grim outlook indicate Alteryx is in trouble, or does its post-earnings plunge represent a good buying opportunity?
Image source: Getty Images.
What does Alteryx do?
Alteryx's namesake platform collects data from a wide range of computing platforms across an organization and blends that information into unified charts and graphs. It also cleans up all of that data so it can be easily fed into a data visualization platform like Salesforce's Tableau or other third-party analytics software.
Alteryx went public in March 2017. Between 2017 and 2022, its annual revenue increased at a compound annual growth rate (CAGR) of 45%, its adjusted gross margin expanded from 85% to 90%, and its customer count more than doubled. Even after factoring in its latest decline, its stock has still risen about 30% over the past five years.
Why is Alteryx's growth cooling off?
When examining Alteryx, be sure to look closely at its growth in customers, annual recurring revenue (ARR), and dollar-based net expansion rate (DBNER). The last metric gauges its year-over-year growth in average contract values instead of its total revenue, which can be distorted by acquisitions and the timing of its contracts.
In the first quarter of 2023, Alteryx's number of customers grew 2% year over year to 8,338, its ARR increased 25% to $857 million, and its DBNER rose by 2 percentage points to 121%. But as this table illustrates, its growth in customers and ARR has consistently decelerated over the past year.
|
Metric |
Q1 2022 |
Q2 2022 |
Q3 2022 |
Q4 2022 |
Q1 2023 |
|---|---|---|---|---|---|
|
Customer growth (YOY) |
14% |
12% |
8% |
5% |
2% |
|
ARR growth (YOY) |
33% |
33% |
31% |
31% |
25% |
|
DBNER |
119% |
120% |
121% |
121% |
121% |
|
Revenue growth (YOY) |
33% |
50% |
75% |
73% |
23% |
Data source: Alteryx. YOY = year over year.
Alteryx anticipates that slowdown will persist, with 24%-25% ARR growth in the second quarter and a 22%-23% ARR increase for the full year. It expects its total revenue to rise 15%-16% for the full year, compared to 60% growth in 2022 and 8% growth in 2021.
During the conference call, CEO Mark Anderson blamed that deceleration on the macro headwinds, which forced companies to rein in their spending and postpone big deals. But on the bright side, Anderson said the company hasn't "seen any material shift in the competitive dynamics," which suggests it still has plenty of pricing power in the analytics software market and that its DBNER should either hold steady or continue climbing.
Stable margins with a lot of debt
Alteryx's growth is cooling off, but its adjusted gross margin held steady year over year at 88% in the first quarter. It also narrowed its adjusted operating loss from $30 million to $18 million.
Its upcoming layoffs indicate it will stay focused on trimming its losses as its top-line growth decelerates, but it will likely remain unprofitable on a generally accepted accounting principles (GAAP) basis for the foreseeable future.
Alteryx still held $885 million in cash, cash equivalents, and investments at the end of the first quarter, but $442 million of that total came from an offering of new senior notes that bear a high interest rate of 8.75% and mature in 2028. That fresh debt boosts its total liabilities to $1.72 billion and gives it a staggering debt-to-equity ratio of 13.8.
The valuations and verdict
That red ink and high leverage make Alteryx a risky stock to hold as interest rates keep rising. But with an enterprise value of $4.3 billion, it looks reasonably valued at 4 times this year's sales. Salesforce, which is a lot larger than Alteryx but only growing at a slightly slower rate, trades at 6 times this year's sales. Palantir, which also helps companies analyze large amounts of data, is growing at a similar rate as Alteryx but still trades at 7 times this year's sales.
Unfortunately, Alteryx's tepid outlook for the second quarter and the rest of the year will likely prevent investors from betting on the stock's near-term turnaround. So for now, investors should avoid it and seek out other software companies that are shouldering less debt and generating more consistent sales growth in this tough macro environment.
