"Data is the new science. Big data holds the answers." - Pat Gelsinger, EMC
I have been following the Data Visualization space for the past four or five of months with a keen eye towards the Tableau (DATA) IPO. That day has finally arrived. Tableau priced its offering at $31 a share last night, which means this little business intelligence software company is going to raise $258 million and open trading at a minimum valuation north of $2 billion. Tableau generated revenue of $127 million last year so the stock is going to open trading at a 20x plus sales multiple. Now here is the interesting thing, Qlik (QLIK), maker of direct competing DV product QlikView, has a current total market value of $2.5 billion. Pretty remarkable when you consider that Qlik licensing revenue last year was $234 million versus $89 million for Tableau. The bottom line here is Tableau is a very hot IPO with some very high expectations, and that has created a very compelling market opportunity.
A little background on the DV Space
The data visualization space is nothing more than a small sub-segment of the much broader business intelligence sector. The three main visual data analytics vendors are Tableau, Qlik, and Spotfire. Qlik has dominated the space revenue wise but predominately outside of North America, Tableau has grabbed marketing edge with its free desktop reader and web publishing Tableau Public application, and Spotfire kind of falls in between the two. The product that they all sell is basically a highly visual form of excel. There are of course tons of bells and whistles, but at the core, these applications provide user interfaces that allow for rapid and easy visualization of complex data sets; they are the kind of application that Microsoft (MSFT) should have invented a decade ago, but never did. Having played around with Tableau, I can tell you it's a fun little application for anyone looking to manipulate data and share it online. But is this a multi-billion dollar business? I doubt it.
DV Applications are a BI Niche, and not a whole new sector
Tableau really caught fire in 2012, which in my book means it is going public at the perfect time. I say this because most of the big players in BI had for the most part ignored DV up until this year. The niche was too small, and moving the needle at IBM (IBM), SAP (SAP), SAS, Oracle (ORCL), and MSFT takes scale. That has all changed. Over the past few months, IBM launched Cognos Insight, SAP lunched Visual Intelligence, SAS launched Visual Analytics, Oracle bought Endeca, and good old Softy introduced Power View in the new Excel. And this is just the big boys. You also have smaller BI players like MicroStrategy (MSTR) enhancing their competing applications like Visual Insight.
I think it is safe to say that every suite from a large BI vendor will include more robust DV tools going forward. I also think it is safe to say that the market is not big enough for three dedicated DV vendors with potential multi-billion dollar market capitalizations. As things stand, Tableau is doing 82% of its business inside North America. Qlik is virtually the flip side of that with 73% of its business outside North America. I think it is safe to say that both companies' 'geographic expansion' will have to come at the other's expense. If I am a software sales guy, I know where to go to milk it for the next year-and-a-half. As an investor on the other hand, the only thing that comes to mind here is price war. Tableau going public is bad news for the other two main vendors. But let's not focus on the long term for a second, and let's consider what the landscape in the market is going to look like at the end of the day today.
Tibco (TIBX), Not Tableau, is the Trade
The way I see it, Tableau is probably going to be pushing $3 billion plus when you consider all the excluded but outstanding 'equity incentive' stock that will come with this offering. That will put the stock on par with Tibco's current $3 billion enterprise value. This should catch your eye because Spotfire did about $140 million in revenue last year and there are plenty of people out there that would argue it makes the most robust DV product on the market. With Spotfire growing like a weed and Tableau and Qlik capturing $2.5 billion plus valuations it would appear that the rest of Tibco's $850 million a year in revenue middleware business is worth nothing. It is either that or the more likely explanation that Spotfire is being grossly undervalued because it is locked inside Tibco. Which begs the question of how does one unlock this value. The way I see it what you have here is a potential mini EMC/VMW (VMW) situation. If I am a Tibco shareholder, I spin off Spotfire here and get the value unlock. This is despite the fact that strategically speaking I would not sell Spotfire as frankly I think this type of product is better housed inside of a bigger BI company like Tibco. However, once the market hype dies and the competition between the dedicated vendors intensifies, Tibco can probably buy back whatever it has sold for a fraction of the cost. The way I see it Qlik and Tableau will be gobbled up by a big player once the bubble that is forming in DV pops. But before that happens, I think you take advantage of the fact that after today's Tableau IPO, more eyeballs will start shifting towards Tibco. I think either a savvy PE shop or an activist investor will consider getting involved here. I also think if you have the patience for it, you can construct a long/short pair trade here, which makes a lot of sense. I will weigh in on that after I see where this stock opens, but my guess is today will be the perfect day for a short Tableau, long TIBX trade to be put on.