Why Tableau’s Stock Has Risen By 40% This Year

Tableau Software‘s (NYSE:DATA) decision to shift from perpetual licensing to a subscription-based model appears to be paying off, and the company’s stock has risen by nearly 40% this year, despite a notable reduction in licensing revenues over the first three quarters. Reduced upfront costs across product lines, and the expectation of increased adoption of its products going forward, suggests an improved growth outlook. Moreover, despite the regular growth in operating expenses, the year so far has seen a relatively slower rate of growth, as the company has prioritized keeping expenses in check.

Our price estimate for Tableau stands at $62, which is around 15% below the current market price.

Subscription Pricing And Product Innovation Drove Adoption 

The first three quarters of the year saw the addition of over 11,000 new customer accounts, which took the overall customer count to over 65,000 (+20% since the beginning of 2017). Tableau was also able to close 38 six figure deals and over a thousand transactions greater than $100,000 in the same period. The company managed to add multiple features such as advanced mapping capabilities with a new spatial file connector, certification to data sources, a PDF connector in the three versions released this year. In the upcoming version, Tableau will be available on Linux, which should further its reach.

Owing to the introduction of subscription-based licensing, Tableau’s licensing revenues saw a 10% decline. However, if customers continue to use the product for a long duration, we should see the license revenue per customer increase. For example, for a customer that deploys Tableau Server, the subscription price is $35 per user per month billed annually. The upfront cost is $420 compared to $1,000 on a perpetual basis. On a perpetual basis, the company would charge the entire amount in the first year, with $800 in license revenue and $200 in maintenance revenue. If the customer renews, the company charges $200 in each of the following years under the maintenance revenue segment. Under subscription pricing, the customer is billed $420 every year. If the customer uses the product for more than 3 years, the subscription-based licensing brings in more revenue to the company in comparison to perpetual licensing.

Tableau generated over 70% of its revenue from the U.S. and Canada, but growth in these relatively mature markets has slowed down. As such, the company is aggressively targeting growth in international markets. International revenues witnessed 17% growth and constituted 30% of the company’s overall revenues (200 basis points above the prior year comparable period), which highlights the returns from its increased global footprint.

With the customer preferences shifting toward cloud-based products, Tableau is leveraging two cost-effective product lines, Tableau Online and Tableau Public, to capitalize on this demand. Both products have seen increased adoption since their launches, which bodes well for the company’s long-term future.

Please refer to our complete analysis for Tableau

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