Factors That Could Potentially Trigger Movement In Tableau’s Stock Price

-15.20%
Downside
170
Market
144
Trefis
DATA: Tableau Software logo
DATA
Tableau Software

Tableau‘s (NYSE:DATA) 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 more than 70,000 customers by 2022. Tableau’s “Land and Expand” strategy has been very successful thus far, and will continue to help the company grow its revenues in the years to come. Consequently, we believe that Tableau’s revenues will increase from $413 million in 2014 to over $2 billion by the end of our forecast period.

Our price target for Tableau stands at $111, implying a premium of around 15% to the market. However, there are certain triggers and plausible developments that can move the stock’s value significantly in the next couple of years. Specifically, we believe that Tableau’s growing enterprise-level capabilities could allow the company to increase its pricing at a higher rate, which could lead to a 10% upside for the stock. Conversely, increased competition from traditional vendors as well as a number of emerging companies could lead to a loss of potential customers for Tableau, resulting in a 15% correction.

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Improving Enterprise-Level Capabilities Could Increase Tableau’s Pricing Power (~10% Upside)

Gartner introduced the concept of governed data discovery that refers to platforms that can address enterprise-level IT requirements as well as assist (non-IT) business users in data discovery. No vendor has addressed both these aspects convincingly so far, but there is an indication that this convergence will happen. Governed data discovery strives to find the right balance between allowing creativity so that end users can experiment with the data and maintaining just enough centralized control so that enterprise tasks can run smoothly. In keeping with this concept, Tableau has introduced more enterprise related features related to visual analytics, performance, scalability and data preparation with its new product Tableau 9.0. [1] Tableau 9.0 also employs technologies such as parallel queries, vectorization, smarter query caches and Query Fusion which improves the software’s speed and efficiency. [2] The company has also secured the services of renowned statistician, academic and author Leland Wilkinson. [3] Considered a pioneer in the data visualization field, Wilkinson created the SYSTAT statistical package in the early 1980’s and has developed various visualization systems since then. Wilkinson has been brought on-board to further research and development efforts in the areas of predictive analysis, scientific visualization and statistical graphics. Wilkinson is an impressive addition to Tableau’s R&D team, which has grown by 50% in the last year, highlighting the company’s commitment to improving and enhancing its products. Consequently, we believe that Tableau’s growing features and capabilities will help in increasing average revenue per customer from current levels of around $12,000 to around $17,000 by 2022.

However, including enterprise related features that enable the product to handle a vast range of functions could allow Tableau to increase its pricing at a higher rate. Tableau closed 482 enterprise-level transactions (worth $100,000 or more) in the first six months of 2015, an increase of 74% from the prior year period. [4] In an optimistic scenario, Tableau’s growing enterprise capabilities could induce many more high-spending clients to shift to the Tableau platform, which could lead to the company’s average revenue per domestic subscriber growing at a faster rate to around $19,000 by 2022. In that event, the price estimate for the company would then climb to $123, implying a premium of more than 10% to our current estimate of $111.

Increased Competition Could Eat Into Tableau’s Customer Base Growth (~15% Downside)

The business analytics market is overcrowded and Tableau faces intense competition from traditional vendors as well as emerging players. Traditional vendors such as SAP SE (NYSE:SAP), IBM (NYSE:IBM) and Microsoft (NASDAQ:MSFT) are aggressively investing in their data discovery capabilities through internal development as well as acquisitions. A number of newer companies such as Qlik Technologies (NASDAQ:QLIK), Datameer, Sisense, etc., have also entered the market and are offering new features, including data discovery, dash-boarding and data visualization. Both these types of market players pose a threat to growth in Tableau’s customer base as well as average revenue per customer. Compared to other in-memory computing based business intelligence players such as Qlik, Tableau has gained an edge in terms of ease of use and data visualization and its customer base is also growing fast. Tableau will need to keep this up by steadfastly increasing its R&D expenditure and constantly innovating in order to compete in an overcrowded landscape. In our base case scenario, we believe that Tableau will be able to hold its own in an increasingly competitive market due to the company’s decidedly-superior data discovery platform and growing enterprise-level capabilities. Consequently, we believe that the company is well on track to acquire more than 70,000 customers by 2022.

However, Tableau’s competitors are also investing in their own R&D pipelines in order to come out with the most efficient products. Qlik is already considered a pioneer in the data discovery segment and the company has introduced more enterprise related features related to reusing data, data governance and control, and scalability with its new product Qlik Sense Enterprise 2.0. [5] Qlik Sense Enterprise 2.0 inculcates a modern, platform-based approach and can span multiple use cases throughout the client’s organization, including self-service data visualization, reporting and dashboards, guided analytics, embedded analytics, etc. Based on the patented QIX Associative Indexing Engine, the software has the most advanced enterprise-grade capabilities Qlik has ever offered. (Related – Qlik’s Strategy Of Improving Enterprise-Grade Capabilities Is Starting To Pay Off) Microsoft has also launched the Cortana Analytics Suite, which is capable of handling enterprise-level big data and advanced analytics. [6] The product will also utilize dashboards and visualizations, perceptual intelligence (face, vision, speech and text analytics), machine learning, and complex event processing. In an adverse scenario, the success of these newly launched products could eat into Tableau’s market share and potential customers. If Tableau’s own pipeline fails to produce a product that could match its competitors’ capabilities, Tableau’s goodwill could erode further. In such a scenario, Tableau’s customer base might not grow beyond 60,000 in the next six to seven years. This could lead to a potential downside of around 15% to our price estimate.

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Notes:
  1. Tableau Software (DATA) Christian Chabot on Q1 2015 Results – Earnings Call Transcript, May 8, 2015, Seeking Alpha []
  2. Tableau 9.0 Brings Interactive Speed and Enriched Flow to Data Analytics, April 7, 2015, Tableau Investor News []
  3. Tableau Expands R&D Team with Renowned Statistician Leland Wilkinson, May 26, 2015, Tableau Investor News []
  4. Tableau’s SEC Filings []
  5. Qlik Introduces Qlik Sense Enterprise 2.0, April 27, 2015, Qlik Press Release []
  6. Announcing Cortana Analytics Suite and New Partner Investments at WPC 2015, July 13, 2015, Microsoft Azure []