Actions by data science and analytics companies Alteryx (NYSE: AYX) have lost more than 40% of their value in a few days. Granted, at its peak, shares have risen nearly 80% in 2020 to date, rallying with other top-flight software names as the effects of COVID-19 have forced many organizations to step up. of their digital transformations, in which old and now –redundant operations be replaced by more efficient technologies.

While the analytical process automation company beat its own guidance in the second quarter, it was nonetheless a “disappointing” report card and outlook for the second half of 2020, implying that its growing days the fastest are perhaps in the history books. This is no reason to get rid of this stock per se, but investors would be wise to temper expectations in the future.

Not all digital is gold

First of all, it’s worth noting that 17% revenue growth – amid an unprecedented pandemic and economic lockdown – is nothing to complain about. But a big expansion is expected here as Alteryx is at or near a loss as it shifts to maximum growth instead of profitability. Second quarter revenue of $ 96.2 million generated negative free cash flow (revenue less operating and capital expenses) of $ 18.8 million.

In fact, the end result of sales was actually just over $ 1 million above Alteryx management’s expectations. And combined with the first quarter results, first half 2020 revenue was 30% higher than a year ago, building on the exceptional exit of the company in 2019. It’s hard to argue for the nearly 80% rise in the share price in recent months, but the sudden reversal in the share price is surprising nonetheless. Which give?

The problem is, Alteryx has reset its forecast for the year 2020 (it had withdrawn its guidance for the year in the first quarter), and what was thought to be a single-quarter hiccup may no longer be there. ‘to be. Expected sales of $ 460 million to $ 465 million in 2020 represent only a 10-11% growth. Rather than data analytics and automation picking up steam as the effects of the pandemic wear off, growth “only” of 10% to 11% would imply that the second half of the year will be a lot. slower to compensate for the 30% growth recorded so far.

Reassess the story

Now Alteryx has a habit of under-promising and over-delivering, as others do by subscription. cloud software companies. It is more than possible that return sales are much better than currently expected. But it’s still a far cry from where it started at the start of the year, and even after stocks fell more than 40%, stocks are still trading for 16.6x sales over 12 months – a premium that shouldn’t be. be accepted if double-digit growth continues for a while and leads to a larger return later for this still currently unprofitable software company.

I don’t count Alteryx yet. After all, it’s hard to argue with a balance sheet that has $ 975 million in cash, equivalents, and long-term investments, and the need for data analysis and automation will continue to grow in the years to come. to come.

However, management admitted that many industries using their platform have been deeply affected by this crisis and are reassessing their spending. New deals were signed, but industries such as retail, finance and energy wisely separated from cash, and the size of the deals was smaller than in the past. Plus, it’s not like Alteryx is without competition. According to data compiled by the Noonum investment research tool, there is no shortage of similar offers (Talend is an example), and many of them (like Microsoft and SAP) have broader sets of software tools to complement their data analysis offering.

Add that after issuing a new round of debt to raise cash last summer (which, it should be said, didn’t really work out), Alteryx now has $ 714 million in convertible debt. The company isn’t in imminent trouble, but it’s not exactly a healthy balance sheet, and shareholders risk being diluted if liabilities are ultimately converted into shares. Coupled with the marked slowdown in growth and the lack of visibility on when it might pick up again, it suddenly starts to sound like a mature tech company, not the young, high-octane team that it was. just a few quarters ago.

Again, nothing wrong with that, but the actions still don’t reflect this possibility. If the days of double-digit sales growth – or even an expansion rate in the teenage percentage bracket – are the new reality, it’s time for shareholders to stop looking at revenue and get started. to seek a net return. . If not, Alteryx might be better off looking for a buyer among its bigger ones. data analysis peers.