Facing novel coronavirus headwinds, possible product challenges, and difficult competition, Alteryx (NYSE:AYX) stock should be avoided at its current high valuation.
More specifically, the company said that, in the second quarter, the amount of time it needed to make deals increased significantly, and it relied more on shorter-term “adoption deals.”
Meanwhile, Alteryx provided lackluster Q3 guidance, and the online reviews of its products are good but not great.
Q2 Results and Q3 Guidance
Alteryx’s Q2 earnings per share came in at 2 cents, versus analysts’ average outlook of -14 cents. The company reported Q2 revenue of $96.2 million, compared with the average estimate of $91.3 million. The company provides data-analysis tools.
But Q3 was apparently coming in well below analysts’ average expectations. Alteryx provided Q3 top-line guidance of $111 million to $115 million, versus analysts’ average estimate of $119.3 million. The company’s Q3 EPS guidance range was 9 cents to 14 cents, compared with the mean estimate of 13 cents.
Speaking on a technology conference held by Citi on Sept. 10, Alteryx CEO Dean Stoecker said that companies were prioritizing spending money on ensuring that their employees could securely work from home. Further, Stoecker estimated that overall spending on the analytics sector would be unchanged this year versus last year.
On Alteryx’s Q2 earnings conference call, its CFO, Kevin Rubin, stated that the company was seeing “smaller deal sizes.”
At the Citi conference, the CEO indicated that the approval process of potential customers had become more arduous, while existing customers had been generally increasing their spending on Alteryx’s products at a slower pace.
On the positive side, Stoecker reported that the company expects its annual recurring revenue to climb 30% YOY in Q3. Further, he reported that executives remain focused on finding ways to exploit data in the cloud and behind firewalls, as well as in new data sets.
And impressively, the CEO noted that Alteryx has more than 6,700 global customers, including in 37% of the world’s 2,000 largest companies.
Some Problematic Reviews and Tough Competition
According to a chart made by research firm Gartner in November 2019 and republished by Seeking Alpha, Alteryx is the top contender in the Data Science and Machine Learning sector when it comes to executing, but lags many of its competitors in terms of “completeness of vision.”
Among the competitors that are ranked ahead of Alteryx in the latter category are TIBCO Software, Microsoft (NASDAQ:MSFT) and SAS, according to Gartner.
Similarly, the reviews of Alteryx’s Designer product on Gartner’s website are good, but not great. Seventy-five percent of reviewers gave the product five stars, while 25% awarded it four out of five stars. In all the specific categories that were graded, including Evaluation & Contracting, Integration & Deployment, Service & Support, and Product Capabilities, the company received an average of around 4.5 stars.
Alteryx is facing some tough competitors. Within the Data Science and Machine Learning sector, in addition to TIBCO, Microsoft, and SAS, are Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) and IBM (NYSE:IBM), according to Gartner. Other companies that sell leading data-analysis tools are Tableau which was recently acquired by leading software-as-a-service company Salesforce (NYSE:CRM) and Oracle (NYSE:ORCL).
A Bearish Analyst Note
In the wake of Alteryx’s Q2 results, research firm Guggenheim downgraded AYX stock to “neutral” from “buy.” According to The Fly, the firm said that the novel coronavirus pandemic was a “factor” behind the company’s poorly received results, but “broader execution and demand challenges” may also have been at play, the website stated.
The firm lowered its price target on the name to $125 from $130.
Valuation and the Bottom Line on AYX Stock
Trading with a trailing price-sales ratio of 15.5 and a forward price-earnings ratio of 119, the shares are far from cheap.
Given the Q3 guidance miss, the good but not great reviews of the company and its product, the warning about the company from Guggenheim, and the high valuation of AYX stock, I would recommend selling the shares.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.