A Closer Look at Tableau’s Q3 Earnings: International Expansion and New Products Driving Top-Line Growth

Tableau (NYSE:DATA), the leader in business intelligence and visualization software, posted solid third quarter results on November 5th. ^[1] The company may have been late to expand internationally compared to its rival, Qlik (NYSE:QLIK), but its efforts are paying off. Growth of revenues from international markets continued to outpace that of North America in the third quarter. International revenues now account for a quarter of the company’s total revenues. Further, Tableau appears to have a keen ear on the ground for keeping track of the ongoing trends and requirements of its customers. This is clear from the innovations it has introduced in its product portfolio — be it better data connectivity in Tableau 9.1, expansion to cloud computing with Tableau Online, or most recently, the launch of a standalone app called Vizable exclusively for providing analytics on mobile devices.

We believe that Tableau is pursuing a good long-term strategy in the business intelligence domain. It is sufficiently distinguished from the new entrants like Amazon (NYSE:AMZN) AWS’s Quicksight and Salesforce’s (NYSE:CRM) Wave. The depth of its analytical insights, presence across all platforms (including on-premise, cloud and mobile), and its easy integration with different data sources are Tableau’s enviable advantages. The growing scale of its operations may reduce Tableau’s revenue growth rate in the coming years, but the company is likely to continue expanding at a commendable clip.

Snapshot of Tableau’s third quarter performance:

• Revenues grew by 64% year on year to $170.8 million
• More than 3,100 customers were added, bringing total customer count to over 35,000
• Non-GAAP gross margin contracted by 200 basis points year on year to 89.5%
• Non-GAAP operating margin improved by 240 basis points year on year to 10.8%
• Diluted non-GAAP EPS was $0.14, compared to $0.05 in the prior year period

Our price estimate of $111 for Tableau is about 10% higher than its current market price.

See our complete analysis for Tableau here

International Expansion a Key Growth Driver for Tableau

Tableau’s international revenues expanded by an impressive 75% year on year, reaching $42.2 million or 25% of the company’s total revenues. In comparison, Tableau’s revenues from the United States and Canada grew by 60% year on year in the third quarter. This clearly shows that Tableau’s international operations are growing at a faster clip than the North American operations, although the smaller may be benefitting from a lower base. The company also pointed to its international operations as the standout factor for its strong performance in the third quarter. ^[2]

With the entry of a number of new players in the business intelligence domain, such as the offerings of Amazon AWS, Salesforce and even SAP (NYSE:SAP), competition is set to heat up in North America. It is likely to be a while before these new entrants turn their focus on international markets, being preoccupied with establishing a footprint in domestic territory first. Therefore, Tableau’s current focus on international expansion could help it establish a strong presence abroad well before its competitors. The sole exception here is Qlik, which already has a well-established presence in international markets.

Tableau is catching up to Qlik in international markets gradually but steadily.

Heavy Investments in R&D to Sustain Strong Product Portfolio

Tableau’s rapid product release cadence is backed by its heavy investments in R&D and product innovation. In the third quarter, it invested $40.1 million in product development, up 71% compared to the prior year period. This was paired with a steady increase in new hires in Tableau’s R&D division throughout the year. ^[2]

Tableau expects to continue building its talent pool and is also planning a significant jump in its R&D investments in the coming years. In the third quarter conference call, CEO Christian Cabot revealed that Tableau plans to invest more in R&D in the next two years than the last 10 years combined. This speaks volumes about the company’s R&D ambitions and its determination to stay at the top of the technological curve. On the flip-side, the heavy step up in R&D investments is likely to drag down Tableau’s operating margin in the near to medium term.

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1. Tableau Investor Relations [↩]
2. Tableau Fiscal 2015 Third Quarter Earnings Call Transcript, Seeking Alpha, November 6, 2015 [↩] [↩]