Alteryx (NYSE:AYX) just tanked on some poor second-quarter earnings. But we think the crash presents investors with a major buying opportunity in AYX stock.
Just to set the record straight — the numbers Alteryx presented were awful. We know that.
The second-quarter numbers themselves were pretty good, and the company largely topped estimates, but that’s where the good news ends.
Third-quarter and full-year guides were flat out bad.
Alteryx is essentially saying it won’t grow revenues at all in the back half of the year, which is a big red flag for a stock trading at 8X forward sales.
But we looked a little deeper and think there’s a reason behind this lackluster forecast — namely, ephemeral accounting and labor issues that will soon sort themselves out.
On the accounting front, Alteryx is pivoting toward a cloud business model. And this means memberships with shorter subscription contracts. That’s certainly weighing on reported revenues, because, per accounting rules, the duration of a contract matters with regard to how much revenue to recognize in a specific period.
But, on the other hand, average contract value increased. So, the company’s annually recurring revenue (ARR) base is actually unaffected by these shorter-length contracts. We believe ARR is a more truthful gauge on the fundamental health of the business. And we think it’s a leading indicator for revenues, given the pivot to the cloud business model.
Therefore, we’re actually quite confident that revenue growth trends will rebound in 2022 and beyond, especially since customer growth trends remain very healthy.
As far as the aforementioned labor issues, the company is saying there has been significant attrition in its sales team due to prevailing labor conditions in which people just don’t want to work in sales anymore.
This is part of a broader labor shortage issue that we believe will resolve itself in September when children return to school and stimulus benefits end.
The Bottom Line on AYX Stock
In summary, we believe Alteryx’s Q2 numbers were bad enough that AYX will be weighed down for the next few weeks.
But, in the longer run, this is an opportunity.
Alteryx is a very good business going through a very good, albeit tough transition.
And that’s why we’d recommend buying on the dip, since AYX stock is currently very undervalued and has solid upside potential.
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On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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