When it comes to growth, the Altium Limited (ASX: ALU) share price has fallen behind many of its ASX 200 tech share cohorts. These include the likes of Afterpay Ltd (ASX: APT), Xero Limited (ASX: XRO) and Appen Ltd (ASX: APX) which have all seen considerable growth year to date. Meanwhile, the Altium share price has languished in 2020. Has Altium fallen from grace or is it still a leading ASX 200 tech share to buy?
Revenue growth but below consensus
On 22 June, Altium advised that its run-rate has fallen behind current analyst consensus despite reasonable subscriber and revenue growth. It cites the new lockdowns in China and an increase in COVID-19 cases in parts of the United States as having some impact on the company's final sprint to the close of fiscal 2020. Altium has been aggressively closing sales at a significant discount. The Altium website showed that its printed circuit board design platform was discounted from AUD$10,445 to $7,185 or 12 monthly instalments of $599.
On 14 July, Altium announced that it had achieved 10% revenue growth and exceeded its 50,000 subscriber target. The significant product discounting is taking a toll on its revenue despite record subscribers, the roll-out of its new cloud platform (Altium 365) and launch of its digital sales stream.
COVID-19 challenges persist
Altium pointed to Beijing's recent lockdown and soaring COVID-19 cases in the US as challenges to its growth story. These challenges continue to persist with the US recording its largest increase in new cases last weekend. The company's main revenue generating service is from its Boards and Systems segment which sells its flagship Altium Designer tool. From a revenue perspective, its 1H20 major revenue generating regions for Boards and Systems were America with 40%, EMEA (Europe, the Middle East and Africa) with 34% and China with 15%. All three regions continue to face challenges with containing COVID-19 which will likely be a drag on revenues beyond the short term.
Foolish takeaway
I believe Altium's decision to aggressively discount its product offering and close deals is not a solution to the challenges it faces as a result of COVID-19. The selling more for less approach is not sustainable, especially if the economic impact of COVID-19 persists for the medium term. With the persistent challenges that Altium faces, I believe investors may be better off looking at other ASX 200 tech shares such as Xero and Appen.
