Alteryx: Now A Pandemic Recovery Play

Summary

• Alteryx's stock has dropped almost 20% after weak and tepid Q4 earnings guidance, which it sees continuing into 2021.
• In spite of poor revenue guidance, there were actually significant positives coming out of Alteryx's earnings call.
• Alteryx is now a pandemic recovery play, poised to meaningfully benefit upon pandemic resolution.

After a brief spike up in the share price in early October on the back of an upgrade in guidance from a previous downward revision, Alteryx (AYX) once again finds itself down in the dumps, with a decline in the share price to near $115 per share after recent earnings. While the market reaction was swift and decisive, there were actually a number of positives coming out of the report. Even though Alteryx was not one of the businesses I recently 'panic bought' during the technology pullback, I continue to believe that Alteryx may be well positioned for strong acceleration and share price recovery at the conclusion of the pandemic

Surface level guidance appears weak

Most of the concern associated with Alteryx's result was guidance provided for Q4 revenue as well as a more modest outlook for 2021. While Alteryx delivered 25% revenue growth in Q3, its Q4 implies a 4% to 7% year-over-year decline. On the earnings conference call, Alteryx also indicated that revenue for 2021 would actually be below revenue in 2020, which at its surface also seems a little concerning.

However, diving deeper into the Alteryx result reveals that much of this is a pandemic related peculiarity. With Alteryx writing a significant volume of short-term six-month adoption licenses, compared to longer-term multi-year deals, initial contract sizes and potential renewals will be smaller in the near term. Given Alteryx recognizes nearly 30% of total contract value as revenue upfront, shorter-term contracts are making it difficult to exceed strong comparisons pre-pandemic where budgets were freer and deals were longer in length.

Interesting color was provided by the Alteryx management team who suggested that Annual Recurring Revenue, or ARR, which is a better representation of the longer-term health of the business would actually be up over 30% in 2021, indicative of the fact that

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.