Tableau’s Stock Price Sensitivity To License Fees
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% over the past year, despite a notable reduction in licensing revenues over the first three quarters of 2017. Reduced upfront costs across product lines, and the expectation of increased adoption of its products going forward, suggests an improved growth outlook.
We estimate that Tableau’s License Fee segment accounts for around 25% of its valuation. We have created an interactive model that details how changes in total customers and average license fee per customer can impact Tableau’s share price. You can modify these assumptions to see their impact on the company’s valuation.
Our price estimate for Tableau stands at $64, which is below the current market price.
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Number Of Customers: Tableau’s customers range from large corporations to sole proprietors. Tableau’s customer count has grown from 7,700 in 2011 to approximately 54,000 in 2016. We currently forecast these customers to grow steadily through 2021, eventually approaching 115,000. However, should the growth be faster than expected – due to enhanced product capabilities and aggressive international expansion and these customers go up to around 133,000 in the long run, keeping the license revenue the same as the base case, there would be a potential upside of 10% to our price estimate for the company’s stock. Alternatively, if the customers reach 100,000 (Scenario 2) due to intense competition from small and big players, keeping the license revenue same as the base case, it could downgrade the valuation by 10%.
Licensing Revenue Per Customer
Tableau’s average revenue per customer continued to grow over the years as the demand for a visual analytics platform increased among various businesses. However, in 2016 the revenue per customer went down. In order to combat competition and cater to customers, the company introduced low-cost subscription-based pricing in early 2017. In comparison to a perpetual license, which is around $1000 per license plus separate charges for maintenance and services, the average subscription-based license is priced at around $500 per year. With a lower upfront cost for availing the technology, small and medium businesses are likely to opt for the subscription-based pricing.Thus, we expect the licensing revenue per customer to decrease gradually. We forecast this revenue to reach over $4,200 by the end of 2021. However, if more existing customers opt for lower-cost subscription pricing and the customer base does not expand owing to increased competition, a decline in revenue per customer to $3,200 during the same time-frame (Scenario 3), would downgrade our price estimate by 10%. Alternatively, if the revenue per customer crosses $5,400 (Scenario 4), it could boost the company’s valuation by 10%.
Our price estimate for Tableau stands at $64, which is around 15% below the current market price.
Please refer to our complete analysis for Tableau