Alteryx maintains a strong position in the industry
The Alteryx (AYX) report for the third quarter slightly exceeded investors’ expectations, and the management left the forecast for the full year 2021 unchanged. Alteryx’s revenue decreased by 5% (against the growth of 24.6% in the last quarter) to $124 million, exceeding analysts’ consensus by a slight 0.3% and exceeding the initial management forecast by 1.2%.
Diluted non-GAAP EPS remains negative (-$0.18), beating market expectations by 2.6%.
The reduction of the average duration of the Alteryx contract to less than 1.5 years compared to the two-year period in 2020, which reduces the volume of recognized revenue.
Among the strong points of the reporting, we can note an increase in the annual cost of contracts (ARR) by 29%, to $579 million, and an increase in the cost of the contract (net expansion rate) 20%.
Without more detailed information, it would be incorrect to unequivocally link this improvement with a reduction in the duration of contracts, an increase in the number of customers, and the business as a whole.
In the reporting period, the issuer managed to attract 284 clients (including large ones such as Dow Jones & Company, Snap-on, Hormel Foods, AutoNation, and BlackRock) compared to 191 and 131 in the second and third quarters of this year, respectively. This dynamic, in our opinion, indicates an increase in demand for Alteryx products.
The company’s strengths also include flexible licensing agreements, which allow expanding the number of users simplified. According to a recent JPM review, consulting partners who offer Alteryx solutions to their clients note strong demand dynamics.
Even though Gartner lowered the company’s rating from “leader” to “challenger” in the latest report, according to Gartner’s peer insights voice, Alteryx as a “consumer choice”: the indicator of contract renewability has been growing since 2019. CEO Alteryx also noted the closing of deals on acquiring small companies Hyper Anna and Lore IO but did not provide details regarding their financial performance. Previously introduced in beta, Alteryx Designer Cloud is now available for North American customers.
The company’s non-GAAP operating margin decreased to minus 8% at the end of the quarter compared to +24% a year earlier due to a decrease in gross margin by three percentage points and a significant increase in operating expenses.
However, such indicators dynamics can be a sign of management’s confidence that the company’s business will continue to expand.
The management’s forecast for the year remains unchanged: revenue growth at 6-7%, ARR – at 29%. Non-GAAP operating loss for the quarter will reach $13-18 million (-2.9%). In addition, the company’s management noted that it expects a further reduction in the average duration of the Alteryx contract. Accordingly, we evaluate the issuer’s results neutrally.
On the one hand, revenue and profit growth rates remain under pressure and operating expenses increase.
On the other hand, we believe that the total value of contracts is growing due to the shortening of their validity period. In parallel, there is an increase in the number of customers and a steady increase in the net expansion rate.
Lack of a forecast for the next year, we maintain the target price for the AYX stock at $99.2 and the “hold” recommendation. Still, we note the risks of a decline in quotations against the background of uncertainty related to the issue of a possible further reduction in the duration of contracts.
