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

-7.48%
Downside
30.50
Market
28.22
Trefis
QLIK: Qlik Technologies logo
QLIK
Qlik Technologies

Qlik‘s (NASDAQ:QLIK) 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 60,000 customers by 2022. Qlik’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 Qlik’s revenues will increase from $557 million in 2014 to $1.34 billion by the end of our forecast period (2022).

Our price target for Qlik stands at $40, implying a premium of around 7% 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 Qlik’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 Qlik, resulting in a 15% correction.

See our complete analysis for Qlik

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

Emphasis on ease of use and visualization in business intelligence software has fueled growth for Qlik. However, that does not mean that enterprise requirements can be ignored. According to Gartner, the Business Intelligence and Analytics industry is expected to grow at a compounded annual growth rate of 8.7% through 2018. [1] Gartner introduced the concept of governed data discovery that refers to platforms that can address enterprise-level IT requirements, as well as assist business users (non-IT) in data discovery. No vendor has addressed both these aspects 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 to allow  enterprise tasks to run smoothly.

In keeping with the concept of governed data discovery, Qlik 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. [2] 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) Qlik’s in-memory computing (IMC) technology is also complementary to data discovery. It reduces the number of data transactions required while analyzing data by storing the entire database in random access memory (RAM) that can be accessed directly by the processor. The IMC engine calculates aggregations rapidly and maintains associations in the data, which makes analysis faster and more real-time. Additionally, Qlik has a cloud based platform which reduces the complexities of infrastructure and storage space requirement. Consequently, we believe that Qlik’s growing features and capabilities will help in increasing average revenue per customer from current levels of around $9,000 to around $10,000 by 2022.

However, including enterprise related features that enable the product to handle a vast range of functions could allow Qlik to increase its pricing at a higher rate. Qlik closed 129 contracts exceeding $100,000 in fees during Q2 2015, compared to 109 contracts in the previous year period. [3] In an optimistic scenario, Qlik’s growing enterprise capabilities could induce many more high-spending clients to shift to the Qlik platform, which could lead to the company’s average revenue per domestic subscriber growing at a faster rate to around $11,250 by 2022. In that event, the price estimate for the company would then climb to $44, implying a premium of approximately 10% to our current estimate of $40.

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

The business analytics market is overcrowded and Qlik 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 Tableau Software (NYSE:DATA), 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 Qlik’s customer base, as well as average revenue per customer. Compared to other in-memory computing based business intelligence players such as Tableau, Qlik has a higher number of customers. However, Tableau has gained an edge in terms of ease of use and data visualization and its customer base is also growing fast. Qlik will need to increase its R&D expenditure and continue to constantly innovate to compete in this increasingly competitive landscape. In our base case scenario, we believe that Qlik will be able to hold its own in an increasingly competitive market due to the company’s exemplary data discovery platform and growing enterprise-level capabilities. Consequently, we believe that the company is well on track to acquire 60,000 customers by 2022.

However, Qlik’s competitors are also investing in their own R&D pipelines in order to come out with the most efficient products. Tableau is already considered a leader in the data discovery segment and has introduced more enterprise related features related to visual analytics, performance, scalability and data preparation with its new product Tableau 9.0. [4] 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. [5] Tableau is also investing heavily in its R&D team, which has grown by 50% since last year. [6] Microsoft has also launched the Cortana Analytics Suite, which is capable of handling enterprise-level big data and advanced analytics. [7] 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 Qlik’s market share and potential customers. If Qlik’s own pipeline fails to produce a product that could match its competitors’ capabilities, Qlik’s goodwill could erode further. In such a scenario, Qlik’s customer base might not grow beyond 50,000 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. Magic Quadrant for Business Intelligence and Analytics Platforms, 23 February 2015, Gartner []
  2. Qlik Introduces Qlik Sense Enterprise 2.0, April 27, 2015, Qlik Press Release []
  3. Qlik’s SEC Filings []
  4. Tableau Software (DATA) Christian Chabot on Q1 2015 Results – Earnings Call Transcript, May 8, 2015, Seeking Alpha []
  5. Tableau 9.0 Brings Interactive Speed and Enriched Flow to Data Analytics, April 7, 2015, Tableau Investor News []
  6. Tableau Expands R&D Team with Renowned Statistician Leland Wilkinson, May 26, 2015, Tableau Investor News []
  7. Announcing Cortana Analytics Suite and New Partner Investments at WPC 2015, July 13, 2015, Microsoft Azure []