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Alteryx Q2 2020 Earnings Report Update & Analysis | BUY $AYX now? - YouTube
Channel: Innovative Investment Ideas
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Hey
everyone and welcome back to another
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innovative investment idea.
My name is Dave, and in today's video
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we'll be taking a look at the Alteryx Q2
2020 earnings report to try and figure
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out why the stock saw such a huge
decline in price
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as a direct result. I'll be going through
some of the data to see if a swift
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recovery is on the cards.
But before we get started just a
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friendly reminder to hit the like button
at the end if you find the video useful
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but also the subscribe button if you're
new as it really helps support the
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channel
as we push for that elusive 1000
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subscriber.
So with all that said let's dive right
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in
After market closed on August 6th, 2020
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Alteryx, ticker symbol alpha yankee x-ray,
released its earnings report to cap off
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a very challenging first half of the
year
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resulting in a vicious sell-off which
saw the stock price tumble after hours
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for a total decline of 28 by the end of
the next trading day, shedding almost a
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third of its value.
It could be argued that the loss was
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unusually large given the stock sterling
track record to that point
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but if we consider that cloud-based
stocks in general also took a huge hit
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with companies such as fastly declining
12 percent and data dog 16
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it seemed like many traders were simply
taking a breather from the sector
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and this exacerbated the negative
sentiment even if alteryx wasn't
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specifically the target
the correction is certainly not the
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first of this magnitude that the stock
has encountered however
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obviously in addition to the market-wide
pandemic crash as it also suffered a
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significant one
almost a year to the date when it
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dropped from roughly 147
a share in early september 2019 to just
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above
87 a share in late october a 40
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decline based on mostly valuation
concerns
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as we now know it not only recovered
from the dip some three to four months
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after the october low
but would go on to eclipse the previous
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september highs as well
but in any case let's take a look at the
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q2 results
to try and figure out if the current
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decline was justified or if it was a
classic case of severe overreaction by
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investors
which should result in an eventual
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return to form i'll assume everyone is
already familiar with my long-term
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thesis of the company
it's called business moat and total
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addressable market
but if you're not feel free to click on
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my previous analysis video of alteryx
appearing as a card in the top right
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hand corner now while my opinion at the
time was based on the financial results
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prior to this quarter
none of the underlying thesis has
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changed much despite the declining price
factoring in the fallout of the pandemic
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okay so starting with the investor
presentation slide deck from alteryx
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themselves
which i will link in the description if
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you're interested in checking out
the first thing that leaps off the page
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is a precedent the company had set with
regards to his business cycle
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consistently ramping up revenues from q1
leading to a peak during q4
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each of the two previous years
presumably the biggest disappointment
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for investors and analysts alike
is a q2 revenue number of 96 million
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coming well under the 109
million for q1 representing an actual 12
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decline
quarter of a quarter obviously when
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investing in growth companies
it's never great to see a decline in any
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metric except for net losses
especially at this early stage of
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development but a few thoughts on this
number one 96 million is still
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objectively a solid number
and a figure that easily beats any
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reported amount from before the trail in
12 months
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additionally it is even 17 higher than
the corresponding revenue from q2
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2019 meaning that the company is
definitely still growing at a fairly
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healthy rate on an annual basis
if we go back a few slides from the
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presentation and take a look at his
customer base for a moment
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what was actually a strength and
diversity before the pandemic
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since it was selling to customers across
every industry has now ironically become
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a weakness
as it serves many customers in heavily
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affected segments
with no actual data pertaining to
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specific customer agreements
or origin of revenue i'm simply
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speculating of course
but my guess is that the weakness in
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revenue for the quarter came from
sectors such as retail
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travel and hospitality energy and
utilities financial services
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and more than likely food services and
potentially even media and entertainment
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also not particularly thriving under the
current conditions with the exception of
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netflix
so as an investor you should assess your
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thoughts on whether you are generally
bullish or bearish about the economy
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will it be quick to recover
and will a solution to the pandemic even
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be found if you answered no to either of
these questions
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then a heavy sell-off was potentially
justified and you should even follow
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through
on your conviction and probably short
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the entire market
but if you're an optimist like me who
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believes that a solution is forthcoming
then clearly the aforementioned sector
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should recover in time
and lift alteryx along with it since it
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has already established relationships
with all the companies pitched here
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and its success is closely tied to
theirs
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the second thought about the numbers so
far is that if we consider for a moment
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that is a cloud company operating under
a software as a service
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or sas business model with a predictable
430 million dollar annually recurring
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revenue as we will see shortly
the company is already demonstrated and
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will more than likely continue
increasing its baseline each and every
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year moving forward
the financial metric which attests to
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this is extremely solid 126
expansion rate as a reminder the
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expansion rate tells us how much
existing customers are augmenting their
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spending
through either add-ons upsells or
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cross-sells so 126 percent
means that existing customers are on
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average spending 26
more each year than the one prior in
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fact
if we go forward one slide we can see
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that the company has always managed to
maintain a healthy expansion rate
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although it does appear on the surface
to be declining in recent quarters
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but was this decline a factor in the
sell-off as well without investors
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taking into account
that alteryx has seen a similar decline
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in the past only to have it ramp up
again
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this metric should closely be correlated
to the first point i made and that with
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any hint of a true economic recovery
the expansion rate should head north
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again advancing one more slide
we see that despite its challenges
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alteryx has continued to position itself
well for the future by increasing its
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customer base 27
year-over-year to now over 6 700
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companies
the rate of increase has been steady and
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seemingly unaffected by the pandemic at
least
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so there's no reason to believe that
this in conjunction with the expansion
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rate
won't contribute to significant revenues
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growth again in the future
the final thought on the declining q2
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revenue is the uncoincidental decline in
data science jobs
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although data analytics is generally a
growing subsegment that i believe will
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become pivotal to business
transformation in the medium to long
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long-term future
in the short term it is evidently not
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high on the list of priorities
for many companies struggling through
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the economic downturn
in other words companies are trying to
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maintain their current level of
operations
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and trying to hit a reasonable level of
profit despite the difficult climate
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and are not actively spending money on
new projects or initiatives
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such as improving the handling of data
or overall efficiency
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which is really what data analytics is
about
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in fact as we can see from this article
from july 30th data science jobs have
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been amongst the worst hit during the
pandemic
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there's even been a marked decrease in
tech job listings in general
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over the last few weeks of 36 percent
when compared to the same period last
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year
but data scientists jobs are down and
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even more significant 43
the worst hit job sectors are logically
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travel and tourism
which fell by over 70 percent but even
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less effective than even tech
where jobs and supermarkets which fell
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by nine percent year-over-year
and government jobs only falling by 11
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over the period
as we can see at the bottom of this
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article the worst hit job subcategories
within the tech sector have been data
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science and it management jobs
the two roles that utilize and stand to
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benefit the most
from companies looking to spend and
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expand into data analytics software
such as alteryx so overall the pandemic
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has proven to have been a significant
headwind for alteryx
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much more than even analysts had
anticipated coming into q2 resulting in
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projections that were quite frankly
too high to begin with remember that on
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wall street
while the actual financials don't always
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translate directly to movement and stock
prices
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the performance of a company relative to
projections usually do
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obviously the lack of revenue was seen
as a big issue by investors
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but at least we now have explored some
of the plausible reasons for its decline
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so let's now move on to the actual q2
earnings report
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as we've already covered revenues for q2
were 96
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million up 17 year-over-year with the
confirmed 430 million annually recurring
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revenue
which actually grew an extremely healthy
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40 percent year-over-year
assuming ultrix does not suffer sudden
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customer turnover
this means it is guaranteed at least 430
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million dollars annually moving forward
even without any new sales or customers
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the company does indeed highlight the
significant effects of the pandemic
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but reinforces its long-term growth
story by continuing to invest heavily
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into r d
even developing an entirely new category
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of software known as analytic process
automation
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and provided updates to his existing
offerings
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again the company appears to be setting
up for significant growth once these
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investments begin to bear fruit
with the obvious trade-off being
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increased costs of operations in the
short term
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even resulting in a net loss as we will
look at very soon
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gross margins remain flat but strong at
around 90 percent
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which is not unusual for a software
company with generally low cost of
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production per unit sold
so there isn't anything remarkable here
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that might have affected the drop in
price
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the next part however is where some
additional concern might be had
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in addition to the declining revenue
which was increased gap losses from
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operations
leaping to 17.8 million when compared to
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8.3
the same period a year ago other
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companies like uber for example
have opted to slash jobs and cut costs
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to preserve capital in this climate
but alteryx has clearly decided to push
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on in spite of the decline in revenues
choosing to instead ramp up r d and
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generally maintain its high cost of
operations
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as we'll see shortly it even launched a
free data analytics training program
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called adapt to thousands of workers
globally
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which could pay big dividends when those
workers begin to seed their platform
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knowledge
amongst their respective companies add
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all these factors together
and it's pretty obvious that the company
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should suffer a heavier loss than
previous periods
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particularly to its bottom line which
came in at negative 35.3 million
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compared to negative 3.2 million for the
corresponding period a year ago
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less than 10 times the amount as a quick
reminder however
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the company was actually profitable
during 2018 and 2019 on an annual basis
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generating roughly 28 million dollars of
net income in both years
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so this huge losses breaking away from
the norm which clearly led to shattered
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expectations
if you're a long-term investor in
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alteryx like myself i think giving up
gratification today
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for a larger payoff tomorrow seems
justifiable but as every investor's time
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horizons are different i'll leave that
for you to decide
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cash flow has remained flat so there
shouldn't have been much effect here
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either
and as we've already gone through most
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of the below highlights i won't mention
them again
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but let's look at the financial outlook
section however
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revenue guidance for q3 is between 111
and 115 million so above q1's relatively
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strong numbers
what's promising to see though is that
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non-gaap income
is expected to turn substantially
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positive again somewhere in the range of
8 to 12 million
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hinting that it could be returning to
profitability again during q4
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even on the gap four year comes in
somewhere between 460
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and 465 million overall representing
only a conservative increase of about 11
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year-over-year to provide further
context
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the increase in revenues between 2017
and 18
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came in at 92 percent and 2018 and 19
came in at 65
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so again it's not hard to imagine why
investors may have had such
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wildly unrealistic expectations despite
the very different current market
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conditions today
so now having reviewed both the investor
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presentation and his q2 earnings report
while there is clearly some general
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revenue weakness and a net income result
that doesn't live up to the usual ultrix
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gold standard
i truly do believe that everything is
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justifiable and
under control by management so there
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isn't really anything that should
reflect such a drastic 28
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sell-off if you think there is some
detail that i've missed
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or have some other material concern
about alteryx that does justify the
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decline
please let me know in the comments down
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below
so to close up the video i want to
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quickly discuss two things
the first is the current analyst
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attitudes towards alteryx as reported on
marketbeat clearly
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not all recommendations have been
updated since the q2 earnings report
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so these may shift drastically over the
coming weeks but as it stands there are
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currently nine buy ratings
four holes and only one cell for an
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aggregate price target of 145 dollars
representing a 20 upside from the
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current price
if we skip ahead to the rating section
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down below we see a flurry of analyst
ratings have come in just after earnings
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oppenheimer reiterated a buy rating and
although it's not listed
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should be 180 dollars piper sandler
although lowered its price target from
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195 dollars to 185 dollars
still implies a significant upside to
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the current level
and goldman sachs has a street high
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target of 216 dollars
which was issued only a month or so ago
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at the end of june
so again full disclaimer this might
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change soon given the latest earnings
report
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but overall the analysts seem to agree
that the stock was unfairly maligned
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the last thing i want to bring up in
this video is actually to take a look at
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amd's trajectory
which might give us a little insight
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into what might be possible with alteryx
as the entire scenario immediately
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reminded me of my investment into that
company at the time
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when amd announced a disappointing q3
2018 earnings result
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were agreed by only a mega four percent
year over year and a projected worse
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than expected fourth quarter revenue of
1.45 billion
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well below consensus estimates of 1.6
billion it shed close to 25
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of its value after hours and the
following trading session
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in fact the slump had even been
initiated slightly before the official
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report
with some analysts downgrading the stock
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and the sell-off persisted for a few
weeks afterwards
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ultimately moving the price from a high
of 33.60 on the 25th of september
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to as low as 16.17 on 30th of october
and overall decline of 52 percent after
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having grown tremendously up until that
point
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and in fact it was actually one of the
top performing stocks on the market
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during all of 2018 despite the huge
decline towards the end
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things were looking grim for amd's
future prospects
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some investors would have panicked and
sold off the shares while others may
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have written them off completely
as a company that's seen his best days
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behind it
now i'm not suggesting that alteryx will
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for sure follow the same path as amd
but given the weakness and revenue for
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only a single quarter
weaker than expected guidance for the
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next quarter and customers highly
dependent on an economic rebound from
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the pandemic
there are certainly signs of weakness
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here but ones that i believe can be
overcome with patience and time
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given the strong foundation and product
the companies built
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oh and by the way the price of amd on
august 6
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2020 just a few days ago 84.85 cents
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that about wraps it up for this video
what are your thoughts on alteryx and
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its earnings report
have you become more or less bullish
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post them down below in addition to any
other questions or comments
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also don't forget to hit the like button
if you enjoyed this video
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and again please consider subscribing to
really support the channel if you
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haven't done so
before i go click on the top video here
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to take a look at the latest and
greatest updates of workhorse
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an exciting electric vehicle
manufacturer or alternatively
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down here for a look at lemonade a
company using artificial intelligence to
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disrupt the age-old insurance industry
as always thanks for watching and i'll
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see you in the next one
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