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I'm likely to exit my position in $BYND in the near term. I'm also considering exiting my position in $AYX, eventually. In general, when I decide that I will sell I'm usually not in a rush to do so.
Here are my reasons for selling:
I buy into the benefits of Plant Based Meats and the long term tailwind at its back. I believe that it's possible for PBM products to taste as good or better than real meat, have a lower carbon footprint and be healthier for you at a fraction of the cost of real meat. I think the quality is already a step-change higher than previous veggie burgers (ie Boca Burgers etc) and will only get better from here. I believe that over time, economies of scale will drive down the cost of PBM too. We are a long way from getting there but I believe that is possible.
What I don't know is if $BYND will be one of the primary beneficiaries of this long term trend. Based on what we know today, this seems like a very real possibility but the future is unknowable and I'm skeptical of $BYND 's long term durability as a leader in the space. Anecdotally, I much prefer Impossible's product than the $BYND burger. To me, it's not even close.
I was underwhelmed by this last quarter's earnings call. Below are some stats:
- YOY Net revenues increased only 2.7% to $94.4 million. They claimed that the slow sales are primarily driven by "a decline in foodservice channel sales due to the continued impact of COVID-19 on foodservice demand levels". They cited streamlined menus at restaurants for being a primary factor. My problem with this explanation is that it has been a known issue since the lockdowns. US & International Retail are up 115% and 135% YTD, which is good but this is down from 157% and 1,973% the previous year. Granted these are off of small bases but I'd assume the WFH environment would be an accelerant for Retail sales as people are cooking at home much more and presumably going to the grocery store more frequently. US & International Foodservice came in at 4% and -34% YTD. Both are very concerning in my eyes. The international markets they are in, Europe & China among others, are further along in the pandemic and handling it better than in the US.
- Gross Margin came in at 27%, down 8.6% YOY. They said this was primarily due to "lower net price realization as result of higher trade discounts and lower absorption of fixed overhead production costs as the Company scaled back production during the quarter to draw down inventory levels."
- Adjusted net loss was $17.5 million, down from $4.1 million profit a year ago. This was driven by "increased operating expenses as a result of increased headcount to support long-term growth, increases in marketing activities, higher share-based compensation expense, investments in international expansion initiatives, and continued investments in innovation.
So revenue growth has grinded to a hault, margins are down and they are no longer profitable. They attribute a lot of these problems to COVID-19's impact on Foodservice but reading through the tea leaves I just see a potentially poorly run business.
Also, the consumer-facing price point today is not very competitive and while I'm impressed with the quality of the product today, it still has a long way to go.
Bottom line, this might be closer to a Pets.com than a $CHWY.
I could be wrong here but my patience is wearing thin on $BYND.
$AYX:
Part of my thesis was that this was a Founder-Led company. I felt that Dean Stoecker was an exceptional communicator who understood the day-to-day frustrations of Data Analysts and Data Scientists. I found his departure to be abrupt and disappointing. This might be an overblown concern as Stoecker is the Executive Chairman of the Board and might have left on his own terms. Mark Anderson seems to have a ton of great experience coming from $PANW and $NET. I just don't like the way this transition was handled.
It's clear to me that they need to rapidly innovate to release some new cloud-based offerings to extend beyond on-prem. This will likely take some time to accomplish. There is execution risk with a new CEO at the helm.
Here are some of the financials from the last quarter:
- $450 million of ARR, up 38% year over year.
- Net expansion rate was 124%
- $1 billion of cash and equivalents.
- "$49 billion total addressable market"
Mark Anderson stated that the following three tailwinds are why $AYX is well-positioned for the future:
- Business transformation initiatives are being accelerated due to the COVID pandemic.
- Companies are struggling to leverage the massive influx of data, cascading in and around their businesses every day.
- Legacy systems and manual processes are slowing down these transformations, often, separating the winners from the losers in this new age.
Mark also had the following to say about the path forward:
"Going forward, our focus will be on improving our self-service and public cloud capabilities to reduce the friction of adoption. And of course, we'll continue to work seamlessly with all types of data residing anywhere. What Dean, Libby, and Ned built here at Alteryx is incredible. Their legacy as innovators in this space is unrivaled.
I'm incredibly honored to step in as CEO to guide the company through the next few phases of our growth. Building and scaling world-class teams and evolving organizations to align with market trends and increasing customer demand is something that I'm not only passionate about, but it squarely leverages my experience. In my short time here, I've already identified a number of opportunities to simplify and streamline the current organization by building an execution framework to optimize resource allocation and expand global operations. This will allow us to deliver more innovation faster.
It's a familiar playbook for me. Near term, of course, I'm focused on leading the team to a strong Q4 and a finish for 2020. At the same time, we're working on a solid plan for FY '21 and beyond. I can assure you, the next several months will be action-packed."
Regarding Q4 guidance, he said the following:
"Q4 is traditionally our strongest quarter. But at the same time, we have to be mindful that businesses are really prioritizing their spend."
The CFO shared the following about Q4 guidance:
_"w_hen we look at Q4, there's still a bit of uncertainty in the market and that certainly is playing a factor as we establish guidance. The other thing just to keep in mind, I mean, we had a very strong Q4 last year. So as we look at the year-over-year comp, it's a little bit more challenging.
And when you put on top of that, the fact that we do think contract duration is going to be a headwind relative to what we saw last Q4, it just makes it a little bit more difficult when you look at it on a revenue basis."
RE: Competition, Mark said:
"it's a $49 billion market. And we think there's over a trillion dollars a year that's going to be spent on infrastructure applications around digital transformation. So there's a lot to go for here. But I look at the complementary players to us that are in the cloud or the big cloud players. We expect the really strong partnerships with them to drive -- not only drive demand in the marketplace but to prosecute that demand as well."
So, my take is the following:
- The next 12 - 18 months will likely be challenging from a revenue comp perspective.
- They have to innovate on behalf of the customer to meet them where they are and reduce friction in adopting their product.
- The CEO seems smart, experienced and familiar with the business as he was already on the board. But there is risk here and I would have preferred if Dean Stoecker was still at the helm.
I'd like to stick around through 2021 as an $AYX shareholder but I'm likely to trim along the way, possibly before Q4 earnings.
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