Alteryx Stock Crushes: Buying Opportunity

Summary

• Alteryx crushed by almost 30% due to disappointing guidance last week.
• The negative impact from the recession is very real and material.
• However, it is also transitory by its own nature.
• The business fundamentals remain intact.
• Expectations how now been reset, and the stock is well positioned for attractive returns at current price levels.
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Alteryx (AYX) got downright obliterated last week, the stock collapsed by more than 28% on Friday after the company's earnings report was received with relentless selling by the market. The struggle is real, Alteryx is feeling the impact from the recession and the timing for recovery is unclear at this stage.

However, the slowdown is most probably transitory as opposed to permanent, and short-term weakness in a high-quality business seems to be creating a buying opportunity for investors in Alteryx.

Challenging Environment

Alteryx actually reported both sales and earnings numbers above Wall Street estimates during the second quarter of 2020. But forward guidance was clearly disappointing, and management did not provide many reasons to expect a recovery in demand in the short term.

It is important to understand that Alteryx provides software to make the data analysis process simpler, easier, and more efficient. This is not a company that benefits from specific work from home trends such as those in online communications or cloud computing. Alteryx offers a relatively expensive software solution in times when companies are cutting their spending as much as possible, and this obviously has a negative impact on revenue growth.

Nobody should be too surprised to see Alteryx suffering the impact from the recession, but management comments in the previous quarter may have provided a wrong impression because the company was not yet fully experiencing the deceleration in April.

In the words of Kevin Rubin, Alteryx's CFO:

Last quarter, we highlighted that new business activity in April was consistent with the levels in April, 2019. This gave us some degree of confidence that customers were reengaging after the abrupt slowdown we saw at the end of March. However, we have typical software linearity in our business, meaning the majority of our bookings are generally concentrated in the back half of the customer, changes

Analyst’s Disclosure:I am/we are long AYX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.