Tableau Q2 Earnings Preview: Solid All-Round Growth Expected

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Tableau Software

Tableau Software (NYSE:DATA) will report its second quarter earnings on July 29th. [1] We expect the company to report that it grew both its subscriber base and its revenues during the quarter. The company’s customer base has grown immensely with the increase in demand for data discovery based Business Intelligence (BI) software, and we believe that the company is well on track to acquire 66,000 customers by 2021. Tableau’s “Land and Expand” strategy has been very successful thus far, and will continue to help the company grow its licensing revenues in the years to come. Maintenance revenue has grown in proportion to the software licensing revenue, helped by a strong maintenance renewal rate of around 90%. Consequently, we believe that maintenance revenue will reach the levels of software licensing revenue by the end of our forecast period.

More than 20% of Tableau’s revenues come from international markets. Consequently, we believe that the strengthening of the dollar will have a minor negative impact on the company’s results in the short term. Currency headwinds have had a similar impact on the quarterly results of other technology companies such as Qlik Technologies (NASDAQ:QLIK).

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See our complete analysis for Tableau

Tableau’s Customer Base Will Continue To Expand

Tableau has seen a significant growth in its customer base, which has jumped from 4,400 customers in 2010 to 29,000 customers by the end of Q1 2015. [2] 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 is expected to grow at a compounded annual growth rate of 8.7% through 2018. [3] 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. [4] We believe Tableau and other similar players are going to be more responsive to this need. Tableau has 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 is considered the gold standard in the data discovery segment. [3] [5] Consequently, we believe that Tableau’s subscriber base will be north of 66,000 by 2021.

Both Licensing And Maintenance Revenues Will Grow

Tableau earns revenue through sale of software licenses and related maintenance and services. Licensing business is the primary source of revenue for Tableau and brought in around 68% of the company’s total revenues last year. [2] 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. [2] 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 contributed 32% towards total revenues in 2014. [2] Maintenance revenue has grown in proportion to the software licensing revenue and it currently stands at around 47% compared to 40% three years ago. [2] We believe that Maintenance agreement revenue will continue to increase as a percentage of licensing revenue throughout our forecast period. Typically, customers acquire one year of maintenance agreements along with their initial purchases. The maintenance and support agreements from the second year onwards 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%, [2] 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. Consequently, we believe that maintenance revenue will continue to grow in proportion to software licensing revenue and will be around 68% of software licensing revenue by the end of our forecast period.

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Notes:
  1. Tableau Software Announces Timing of Second Quarter 2015 Financial Results, July 7, 2015, Tableau Investor News []
  2. Tableau’s SEC Filings [] [] [] [] [] []
  3. Magic Quadrant for Business Intelligence and Analytics Platforms, 23 February 2015, Gartner [] []
  4. Gartner Press Release, December 16, 2013, www.gartner.com []
  5. A Leader. Again., Tableau Press Release []