Is It Too Late to Buy Alteryx Stock?

Share prices of Alteryx (AYX) sank 18% on Aug. 8 after the data analytics company posted a mixed second-quarter report. Its revenue rose 4% year over year to $188 million and beat analysts' estimates by $6 million. It narrowed its adjusted net loss from $32 million to $26 million, or $0.37 per share, which also cleared the consensus forecast by $0.30.

Those headline numbers weren't disastrous, but Alteryx issued a grim outlook for the third quarter and significantly reduced its full-year guidance. Let's take a closer look at those challenges to see if it's too late to buy Alteryx's battered stock.

Image source: Getty Images.

How bad was Alteryx's slowdown?

Alteryx's platform collects data from different computing platforms across an organization, then aggregates all of that information onto unified charts and graphs. It also cleans up that data so it can be fed to third-party data visualization services like Salesforce's Tableau and Microsoft's Power BI.

From 2017 to 2022, Alteryx's revenue rose at a compound annual growth rate (CAGR) of 45%, and its total number of customers more than doubled.

But over the past year, its growth in customers, annual recurring revenue (ARR), and total revenue all decelerated -- even as its dollar-based net expansion rate (its year-over-year revenue growth per existing customer) remained steady at around 120%. It also stopped disclosing its year-over-year growth in total customers in the second quarter of 2023.

Data source: Alteryx. YOY = year over year. *Stopped reporting on a quarterly basis.

Alteryx, like many of its industry peers, blamed its slowdown on the macro headwinds, which broadly throttled enterprise spending on big software upgrades. It expects that slowdown to deepen in the third quarter with a 2% to 4% year-over-year decline in its total revenue, which broadly missed the consensus forecast for 8% growth.

For the full year, Alteryx expects its revenue to rise 9% to 10%. That's much lower than its prior forecast for 15% to 16% growth and analysts' expectations for 15% growth.

During the conference call, chief financial officer Kevin Rubin said although Alteryx had already factored a "weaker macro environment" into its prior full-year outlook, it didn't anticipate a "significant change in customer buying behavior" that occurred in the last two weeks of the second quarter.

Specifically, Rubin said Alteryx saw a "significant divergence from historical conversion rates" in the U.S. as many of its larger customers "opted to delay or meaningfully reduce new initiatives until the time of renewal."

Focusing on the factors it can control

Alteryx's abrupt guidance cut left investors stunned, but the company plans to aggressively rein in its spending to stabilize its margins and narrow its losses. Rubin believes the elimination of most of its open positions, additional layoffs, and other cost-cutting could generate an annualized cost saving of over $30 million. 

Between the first six months of 2022 and 2023, Alteryx's adjusted operating margin improved from negative 18% to negative 12%. And for the third quarter, it expects to post a positive adjusted operating margin of 1% to 3%.

For the full year, it expects to generate a positive adjusted operating margin of 7.5% to 8.5%, which would mark a big improvement from its positive adjusted operating margin of 2% in 2022.

Those are certainly baby steps in the right direction, but Alteryx remains deeply unprofitable based on generally accepted accounting principles (GAAP). That's not a good look when its industry peer Palantir Technologies -- which expects to grow its revenue by at least 16% this year -- has generated stable GAAP profits over the past three quarters. Alteryx's staggering debt-to-equity ratio of 32.2 could make it even less appealing as long as interest rates stay elevated. 

Is it the right time to buy Alteryx?

With an enterprise value of $2.7 billion, Alteryx's stock looks cheap at less than 3 times this year's sales. By comparison, Palantir trades at 14 times this year's sales.

However, Alteryx deserves that steep discount because its revenue growth is stalling out, it faces stiff competition from other similar platforms, its balance sheet is messy, and it doesn't have a clear path toward generating stable GAAP profits. For now, investors should bet on more-promising tech stocks instead of Alteryx's long-term recovery.