Increased Adoption Of Subscription Model Drove Tableau’s Top-Line Growth

In line with the market expectations, Tableau Software (NYSE:DATA) posted a solid revenue growth for its second quarter driven by improved adoption of its subscription-based model and strong renewal rates. While the transition to the subscription model continued to weigh on the company’s gross margins, the company manged to grow its customer base, which is likely to boost its value in the near term. Further, the company’s investment in smart technologies, such as Tableau Prep, and innovation-driven acquisitions, are expected to drive its value in the long term.

We currently have a price estimate of $91/share for the company, which is lower than its market price. View our interactive dashboard – Factors That Will Drive Tableau’s Top-Line Growth and modify the key drivers to visualize their impact on its earnings.

Key Highlights of 2Q’18 Results

• Tableau experienced strong demand for its three new subscription offerings – Tableau Creator, Explorer, and Viewer – across all major geographies. The company added over 4,100 new customers in the quarter, taking the total customer accounts to over 78,000.
• Further, the company’s overall combined renewal rate (perpetual as well as subscription) was in excess of 90% for the quarter. Consequently, the company reported a total revenue of $243.6 million, 14% up from the quarter of last year. This was above the company’s guidance range of $230-$240 million and was driven by strong growth in its license revenue. According to the new revenue recognition standard, the company’s revenue stood at $282.3 million for the quarter.
• In addition, Tableau witnessed a strong uptake in its subscription offering from both commercial and enterprise customers, which caused its rate-able license bookings as a percentage of total license bookings to increase to 67% in the quarter. This was also at the higher end of the company’s expected range of 62%-67% for the quarter. Besides, this is a significant improvement to the company’s rate-able license bookings of only 26% in the first quarter of 2017.
• Despite a solid growth in its top-line, Tableau’s total gross margin dropped to 87% compared to 89% in the year ago quarter. This was largely due to higher sales & marketing and research and development expenses for the quarter. Further, the company’s head count rose notably during the quarter, further contributing to the rise in its operating expenses. That said, the company recorded a operating loss of $7.3 million, which was lower compared to its guidance of $10-$17 million.

Going Forward

• In order to remain competitive, Tableau announced the acquisition of an AI startup, Empirical Systems, a company that specializes in automated statistics. With this deal, Tableau aims to reduce technical complexities in its platform and allow its customers to use sophisticated analytical techniques in their everyday decisions.
• Further, the company is investing in smart technologies, such as Tableau Prep, that enable its customers to uncover insights in their data from machine learning-based recommendations for data sources, tables, and drawings. Further, it has launched over 100 new features and capabilities over the last few quarters to ensure a rapid pace of innovation across its platform. This includes the launch of Hyper, its new data engine technology, and Tableau Server on Linux earlier this year.
• Backed by the progress of its transition to a subscription model, Tableau expects its third quarter revenue to be in the range of $236-$246 million, implying a rise of around 12% on a year-on-year (y-o-y) basis. Further, the company has narrowed its fiscal year 2018 revenue guidance to $965-$985 million, which represents a y-o-y growth of 11% (using mid-point of guidance). This growth will be driven by the early demand for its Creator, Explorer, and Viewer offerings.
• In terms of the rate-able license bookings, Tableau expects its rate-able license bookings to be 72%-76% of its license bookings for the third quarter. For the full year, this number is likely to be in the range of 68%-71%, higher than its previous guidance.
• The transition to a subscription model will continue to weigh on Tableau’s operating profits and margins. The company estimates its 2018 operating loss to be 4%-5% of its total revenue. For 3Q’18, the company expects its Non-GAAP operating loss to be between $12 and $19 million and EPS to be in the range of $0.09-$0.15 per share. For the fiscal year 2018, Tableau’s non-GAAP loss is expected to be $0.30 to $0.40 per share.

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