Tableau To Continue Firing On All Cylinders In Q1; Currency Headwinds Could Have Some Impact

Tableau Software (NYSE:DATA) will report its first quarter earnings on May 7th. Tableau is an innovative Business Intelligence (BI) software company, which provides its clients with tools and interactive dashboards to search, query, analyze and visualize sets of data to generate useful business insights. Tableau is considered a pioneer in the field of data discovery. Data discovery involves discovering insights from a set of data and analyzing and presenting those insights in interactive and visual format, which makes it easy for business users (non-IT) to run queries and analysis. The company has grown at a rapid pace  with the increase in demand for data discovery based BI software, and we believe that this trend will continue in the near future.

Around 23% of Tableau’s revenues come from international markets. Consequently, we believe that the strengthening of the dollar will have some negative impact on the company’s results in the short term. Currency headwinds have had a similar impact on the first quarter results of other technology companies such as Qlik Technologies (NASDAQ:QLIK) and Akamai (NASDAQ:AKAM).

We currently have a price estimate of $103 for Tableau, which implies a premium of around 5% to the market price.

See our complete analysis for Tableau

We Will See Continued Growth In Tableau’s Customer Base

Tableau has seen a significant growth in its customer base, which has jumped from 4,400 customers in 2010 to 26,000 customers by the end of 2014. ^[1] We believe that the company’s subscriber base will continue to grow in the coming years. The business analytics software industry is in the midst of a secular trend of growth and Tableau has been one of the beneficiaries. According to Gartner, the Business Intelligence and Analytics industry grew by 9% in 2013, and is expected to grow at a compounded annual growth rate of 8.7% through 2018. ^[2] Within the BI software market, Tableau belongs to the segment specifically focused on developing easy to use and interactive data discovery platforms. In the recent years, focus has shifted in this market from traditional enterprise IT requirements to data discovery. In addition to the conventional established reports, big firms now want descriptive, predictive and prescriptive analysis performed by a larger population of administrators. According to Gartner, data discovery is poised to become a dominant segment of BI market, replacing traditional BI, which involves static reporting. ^[3] We believe Tableau and other similar players are going to be more responsive to this need. Tableau has been  featured as a leader in Gartner’s Magic Quadrant for Business Intelligence and Analytics Platforms for the last three years and its business discovery platform has been a pioneer in the data discovery segment. ^{[2] [4]} Tableau’s in-memory technology is also a big draw for its customers. In-memory computing (IMC) technology reduces the number of data transactions required while analyzing data by storing the entire database in random access memory (RAM) which is nearer to the processor. This allows for real time data analysis, bypassing the read-write cycles required in conventional data base computing.

Revenues Will Continue To Grow

Tableau generates revenue through the sale of software licenses and related maintenance and services. The licensing business is the primary source of revenue for Tableau and currently brings in around 68% of the company’s total revenues. ^[1] The company sells software licenses mostly in perpetual form. Tableau’s licensing revenues have tripled in the last two years, jumping from under $90 million in 2012 to $280 million by the end of 2014. ^[1] We believe Tableau’s licensing revenues will continue trending upwards, aided by the company’s “Land and Expand” strategy. Under this strategy, Tableau targets purchasers at the department level, in some instances starting with a bare-bones version that can be downloaded for free and subsequently upgraded with a license purchase. Customer penetration extends from an initial download, both through the purchase of increasingly robust offerings and through the addition of seats as users’ work-mates learn of the new tools’ capabilities and download their own versions.

Maintenance and support is also a major source of revenue for Tableau and contributes 32% towards total revenues. Maintenance revenue has grown in proportion to the software licensing revenue and it currently stands at around 47% compared to 40% three years ago. ^[1] We believe that Maintenance agreement revenue will continue to increase as a percentage of licensing revenue throughout our forecast period. Typically, customers acquire an year’s worth of maintenance and support along with their initial purchases. Afterwards, the maintenance and support agreements are sold on a term basis and their renewal is optional for customers. For the past three years, Tableau has witnessed a strong maintenance renewal rate of around 90%, ^[1] which reflects the value that the customers realize from using its products, and also the value they see in having an active maintenance agreement with Tableau. Tableau’s licensing revenue is based on perpetual licensing, whereas maintenance revenue is recurring and boasts of a strong renewal rate.

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1. Tableau’s SEC Filings [↩] [↩] [↩] [↩] [↩]
2. Magic Quadrant for Business Intelligence and Analytics Platforms, 23 February 2015, Gartner [↩] [↩]
3. Gartner Press Release, December 16, 2013, www.gartner.com [↩]
4. A Leader. Again., Tableau Press Release [↩]