Tableau Software - Valuation Is Too Rich After A Very Successful Public Offering

| About: Tableau Software (DATA)

Tableau Software (NYSE:DATA) made its public debut on Friday the 17th of May. The software company, which helps decision makers understand and visualize data, ended its first trading day with gains of 63.7% at $50.75 per share. Towards the end of the regular trading session, shares reached highs of $52.15 to give up some of the gains in after-hours trading. Still the offering has been a great success.

At these elevated levels, after shares have more than doubled from their initial guided price range, shares have become too expensive to my taste.

The Public Offering

Tableau Software helps decision makers to see and understand their data with Tableau's sophisticated software products. Core technologies, which were originally developed at Stanford University, reduce the complexity and expenses associated with traditional business intelligence applications. By allowing decision makings to analyze the data themselves, the company helps companies to accelerate the pace of decision making as well.

Tableau Software sold 8.2 million shares for $31 a piece. The company sold 5.0 million shares to the public, thereby raising $155 million for the firm. The remainder of the shares were sold by selling shareholders including venture capital firm New Enterprise Associates and Meritech Capital Partners.

The public offering values the equity of the company around $1.78 billion. The offering was quite a success. Initially the firm and selling shareholders only anticipated to sell 7.2 million shares in a preliminary price range of $23-$26 per share.

Some 12% of the total shares outstanding were offered in the public offering. At Friday's closing level of $50.75 per share, the firm is valued around $2.92 billion.

The major banks that brought the company public were Goldman Sachs, Morgan Stanley, Credit Suisse, J.P. Morgan and UBS Investment Bank, among others.


Tableau Software's products are used across many organizations including large multinationals, small and medium sized businesses and governmental organizations. The company's products are based upon key technologies which support high performance database and interactive graphics. Tableau's VizQL query language allows users to customize and easily retrieve the information they need.

The company had over 10,900 customers at the end of the first quarter of 2013, including large names like Deere (NYSE:DE) and Sears Holdings (NASDAQ:SHLD). The company has partnered with many large traditional and non-traditional database vendors, including the likes of Google, Oracle and Microsoft.

For the year of 2012, Tableau generated annual revenues of $127.7 million, up 105% on the year before. As the company had to scale up in organizational terms, and effective tax rates rose sharply on the year before, net income fell from $3.4 million in 2011 to just $1.4 million in 2012. The company generates some 17% of its revenues abroad, and currently employ 834 workers.

The company ended its first quarter of its fiscal 2013 with $40.5 million in cash and equivalents and operates without any debt. Factoring in the public offering proceeds, and the company could operate with roughly $180 million in net cash. This values operating assets of the firm around $2.75 billion.

As such, the firm's operating assets are currently valued around 21 times 2012's annual revenues.

Investment Thesis

As noted above, the public offering of Tableau Software has been a great success. Shares were offered 26.5% above the midpoint of the preliminary offering range, and are currently exchanging hands at $50.75 per share. This implies that shares trade an incredible 107.1% above the midpoint of the initial guided price range.

The company has been off to a solid start of the year, although growth rates have come down a bit already. First quarter revenues came in at $40.0 million, up 61.9% on the first quarter of last year. At the same time, operating expenses increased by 109% to $42.2 million. While the company reported a first quarter profit of $1.1 million last year, Tableau was forced to report a $4.0 million loss in the first quarter of 2013. Yet this slightly disappointing result did not scare off investors.

According to Tableau's S-1 Filing, market research firm International Data Corporation expects that the amount of digital information will increase from merely 0.8 trillion gigabytes in 2010, to 40 trillion gigabytes in 2020, promising a bright future for the company.

Yet there are some risks to this offering. Of course, Tableau has to grow its operations very rapidly which poses operational risks as the company has doubled its size each year over the past years. The biggest risk for now appears to be the increase in competition.

The big data theme has attracted a lot of interest in recent times. Tableau is well positioned within the visualization subsector of the business intelligence sector. The company competes against the likes of Splunk (NASDAQ:SPLK) which had a highly successful public offering a year ago, and TIBCO Software (NASDAQ:TIBX). The large enterprise providers, including SAP (NYSE:SAP), Oracle (NASDAQ:ORCL) and even Microsoft (NASDAQ:MSFT) have shown an interest in the market opportunity as well.

After the highly successful public offering, I am a bit skeptical. Shares are valued at a ridiculous 21 times 2012's revenues. While I appreciate the strong revenue growth, I notice that first quarter revenues increased by 61%, which compares to growth rates of 105% for the full year of 2012.

The slower growth rates in the first quarter are even more surprising as Tableau notes that it has increased operational investments in the first quarter, to grow its revenues. These additional investments have not resulted in slid growth. The interest of large ERP-vendors in the area works positively as it increases the chance of a take-out, but more likely will result in meaningfully more competition.

I remain in the sidelines on the valuation concerns and growth slowdown as mentioned above. Yet I do not initiate a short position at this moment given the euphoria and possibility of a short squeeze, given the limited float.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.