Accounting rules distort Alteryx's real growth
If you're new to Alteryx, you might not know the strange accounting rules by which the company must report earnings. Without getting into the nitty-gritty, Alteryx has to record 35% to 40% of its total contract value for deals upfront, with the rest recognized evenly over the remainder of the term.
That can really distort revenue if customers start opting for longer or shorter contracts. For instance, if a customer buys a three-year contract for $3,000, then $1,200 will be recognized upfront. However, if the customer buys a one-year contract for $1,000, which is really the same value, Alteryx will only recognize $400 upfront.
With the pandemic causing lots of uncertainty among customers, many new and renewed contracts are being booked at shorter durations, which is affecting recognized revenue.
Fortunately, the company has also begun disclosing its annual recurring revenue metric, which corrects for the accounting distortion and is probably more indicative of revenue. While revenue is projected to decline 4% to 7% next quarter, ARR is supposed to reach $500 million exiting 2020, which would actually mark about 30% growth. Additionally, customer growth has been consistent every quarter, with the third quarter customer count up 24% and a net expansion rate of 124%