On January 14, Dean Stoecker, Alteryx’s CEO, and Kevin Rubin, the CFO, spoke at the Needham Growth Conference. This conference included many of the software stack companies we track (MDB, DDOG, APPN, SMAR, etc.). Listening to the presentation, I had a couple of encouraging take-aways that further reinforce my long term view on Alteryx stock performance. I am bullish on AYX. Interested readers can review my prior recommendation.
Interestingly, the day following the conference (Jan 15th), AYX stock jumped to a high over $127 for a peak gain of 6%, before settling late in the day to a 2.7% increase (most software companies also drifted lower). It’s possible this was an outcome of the commentary from the presentation, or just continued momentum. Regardless, the following is a bullet list of the points from the presentation that I thought were noteworthy.
- Dean acknowledged “noisiness” in the analytics space, but is not surprised given the enormous market opportunity. Many companies want to be perceived as participating. He just sees this as validation of the opportunity and providing tailwinds for Alteryx.
- The Alteryx business model is likely more powerful than the platform in his words, given the power of the land and expand sales motion. I thought this point was interesting. After the typical initial land with a couple of Designer licenses, other team members observe the productivity gains for the first users and then want similar benefits. This leads to continued cycles of expansion through more licenses and product offerings.
- Dean thinks that Chief Data Officers will be more aggressive in 2020 with their analytics investment, as digital transformation is becoming a more pressing objective. This results from what Dean describes as digital transformation 2.0, recognizing that the initial wave of digital transformation initiatives had mixed results.
- The analyst asked for an update on the $1 billion revenue target for Alteryx and if that is still feasible in a few years. Given how large the addressable market is for analytics, Dean stated that Alteryx has less than 1% of the market currently. He sees a path to $1B as being fairly straightforward by 2022. It will require strong execution, but is achievable. He went further and talked about how leadership is already thinking beyond $1B as “Act 2 & 3”, to $3B or $5B in revenue. I was happy to hear discussion beyond $1B.
- This would involve activating the ecosystem around the Alteryx platform. Other companies would be incentivized to build solutions on the Alteryx platform for their customers to consume. In the future, Alteryx will deliver vertical solutions and support “platform ventures” in which other companies enable the same.
- Data science sessions are the most popular at Alteryx conferences.
- Global SI’s are continuing to evangelize the Alteryx platform with their customers.
- Restated the strong partnership with Tableau, even after the Salesforce acquisition. No impact to Alteryx from Salesforce. Dean even sees the introduction of Tableau by Salesforce to their customers as an opportunity for Alteryx, as Alteryx’s data preparation services will still be needed in order to provide the data source for Tableau, much like the relationship today. I thought this point was refreshing, counter to worries that Tableau Prep represents a competitive threat to Alteryx.
- Recent acquisitions are going well, with ClearStory and Feature Labs. ClearStory provides smart tooling, that is being incorporated into the product roadmap. Also, provides an office in Silicon Valley for recruiting new talent. Feature Labs has strong ties to MIT. Deep into machine learning and auto-modeling. Great corollary to the Alteryx mission, by focusing on feature engineering. Provides presence in Boston. Continuing to recruit engineers will be a challenge. Having presence in three large talent pools will help.
- Dean feels the analytics market is consolidating. Many start-ups are struggling. They have good ideas and IP, but difficulty finding product / market fit. Alteryx, on the other hand, is a neutral platform, agnostic to data source, data types, as well as consumption layer and visualization tools.
- Alteryx partners, not competes, with other auto-modeling vendors – DataRobot, H20, even Microsoft’s auto-modeling free solution.
- Alteryx’s auto-modeling solution is in beta. They call it “assisted modeling”. It effectively is auto-modeling. Can serve a dual role, as a black box for data scientists or guide an analyst through the process of creating a model.
- On financial outlook, 2019 was a heavy investment year – mainly focused on sales infrastructure and product development. Going forward, will continue to invest as long as they see ROI and growth opportunities. Investment in sales primarily applies to international sales offices. We have seen the benefit in other SaaS companies of establishing sales offices overseas.
- Maintaining long term operating margin target of 35-40%, originally presented as a 4-6 year time horizon. Leadership reserves the option to continue investing if the ROI is there, but it’s clear how to reach that operating margin target.
- Dean responded to another competition question by referring back to the low penetration rate in the addressable market, implying he feels there is still a lot of greenfield opportunity. Dean sees every deal win/loss alert. Their only consistent competitor is SAS, which Dean thinks will continue to favor Alteryx going forward.
Overall, I think Dean again demonstrated his strong grasp of the market dynamics and how Alteryx is positioned to win. I thought the handling of questions around competition was encouraging, as this has been raised as an area of risk by other analysts. Most compelling for me, though, was affirmation of the $1B revenue target within 3 years and continued revenue growth trajectory beyond that with strong operating margin. These should justify a favorable multiple over the current $7.6B enterprise value.