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Bull of the Day: Alteryx (AYX)

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Alteryx (AYX - Free Report) is a $5 billion provider of a software platform that allows companies to create their own "self-service" data analytics. The software is designed to make advanced analytics accessible to any data worker.
 
Here's how the company describes their mission to unify the data analytics process in a single platform for tens of millions of workers who are overloaded in data and buried for wasteful hours every week in spreadsheets...
 
The modern, end-to-end Alteryx analytics platform enables analysts and data scientists alike to discover, share and prep data, perform analysis – statistical, predictive, prescriptive and spatial – and deploy and manage analytic models. 
 
I recently bought AYX shares for the Zacks TAZR Trader portfolio and here's what I told our members...
 
Data science and analytics are incredibly important when companies are being flooded in data and they don't know what to track or how to optimize it. I've had Alteryx on our watch-list since before their May 1 earnings report exploded shares to $99. Strong support should be at $80 and $85 is minor support. This $5.5 billion enterprise is trading at 14X forward sales of $400 million, which are expected to grow over 75% this year.
 
AYX first became a Zacks #1 Rank (Strong Buy) back in November, when shares were trading just $50, after a strong 3Q18 report that delivered a 260% positive EPS surprise and its first quarterly profit. Their recent Q1 report also surprised with a profit of 4-cents vs. an expected loss of 8-cents.
 
With over 250 data tools available, the company's primary products consist of Alteryx Designer, Alteryx Server and Alteryx Analytics Gallery.
 
Citing major customers like Coke, Audi, Cisco, Dell, Kroger, J&J and Microsoft (MSFT - Free Report) , here's how the Irvine, CA-based company describes one of its product platforms...
 
Alteryx Designer empowers data analysts by combining data preparation, data blending, and analytics – predictive, statistical and spatial – using the same intuitive user interface, no coding required. The company partners with Tableau DATA to enhance its "visualytics."
 
Alteryx Server is a secure and scalable product for sharing and running analytic applications in a Web-based environment and Alteryx Analytics Gallery is a cloud-based collaboration offering which allows users to share workflows in a centralized repository.
 
The Path to $1 Billion in a Giant TAM
 
Founded in 1997, this 2017 IPO quickly move toward profitability in 2018 as sales grew at very high double-digits. Revenues are projected to grow another 75% this year to $360 million.
 
And from a loss of 2-cents last year, Alteryx is expected by analysts to vault into profitability this year with projected EPS of $0.43.
 
The demand for Alteryx tools and services is driven by the growth of the "big data" market. International Data Corporation (IDC), the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets, estimates that the worldwide big data and analytics software market will surpass $50 billion by 2021.
 
But Statista estimates that total revenues from big data and business analytics will hit over $250 billion by 2022. If IDC is too conservative, and Statista is too speculative, why don't we just split the difference and call it a $150 billion TAM (total addressable market).
 
And Alteryx did their own study of workers buried in spreadsheets and found that 47 million spreadsheet users who work on advanced data prep and analytics generate additional spend of $24 billion.
 
But IDC takes that even further in estimating that $60 billion per year is wasted on analysts doing repetitive manual work in spreadsheets.
 
As Alteryx reaches more customers with their solutions, their sales trajectory into this giant TAM of ~$150 billion will probably grow at greater than 30%, just like their customer base.
 
AYX ended Q1 of 2019 with 4,973 customers, a 35% increase from Q1 of 2018. The company added 277 net new customers in the first quarter of 2019.
 
Another key metric for this business is "how much more are the customers you keep paying you to keep your services."
 
This is called dollar-based net expansion. So it's not just customer and revenue retention but growth within those. 
 
For Q1, Alteryx achieved a dollar-based net expansion rate (annual contract value-based) of 134%. This means that not only does the company keep 100% of its customers, those customers pay on average over 30% more year-on-year.
 
While next year's revenue growth consensus is projected to be only 30% to $469 million, I expect those numbers to rise and provide the path to $1 billion in sales in 2022.
 
Disclosure: I own AYX shares for the Zacks TAZR Trader portfolio.
 
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