Give Tableau The Benefit Of Doubt, But Not DATA Stock

| About: Tableau Software (DATA)

Summary

Tableau management deserves the benefit of the doubt.

Tableau's first quarter licensing growth and outlook is most likely caused by a lack of execution, not competition.

This does not mean that DATA stock is a buy following its big post-earnings loss.

There is no question that Tableau (NYSE:DATA) has spoiled investors and analysts since its 2013 IPO. Since then, it has not missed top or bottom line expectations one time.

In fact, DATA stock may have been cut in half in response to fourth quarter earnings, but once more, Tableau beat analyst expectations, soundly. The company's EPS of $0.33 was a whopping $0.17 better than the street expected.

As a result, investors should give management the benefit of the doubt when they essentially say "we had a bad quarter" and insist that "competition is not the issue." If one thing is certain, Tableau's management has earned that vote of confidence.

Furthermore, Tableau's earnings were not all that bad. Yes, licensing growth of 31% year-over-year represents a significant deceleration from its 57% license growth in the third quarter. However, it still added 3,600 new accounts with 11.5% of those new accounts being worth $100,000 or more.

Regardless, the quarter may not be what DATA investors have come to expect, fact is that Tableau dropped the ball. Tableau customers did not expand their use of the Tableau ecosystem at the same rate that we have seen in the past. While Amazon's (NASDAQ:AMZN) move into the BI/analytics space may be in part to blame, as could Microsoft's (NASDAQ:MSFT) complete revamp to its Power BI platform, the more likely scenario is that execution was the culprit. That is if Tableau is correct in saying that its win rate of new customers in the industry has not changed.

Ultimately, this suggests that Q4 may have just been a down quarter for the industry, and Tableau did not help matters with a poor quarter of execution. One thing's for sure, we will learn more about the industry's performance in Q4 when Qlik Technology (NASDAQ:QLIK), Splunk (NASDAQ:SPLK), and SAP (NYSE:SAP) report earnings in the near future.

With all that said, Tableau's 2016 revenue outlook for $850 million (high-end of guidance) is likely achievable due to the fact that the company guides light. But still, $850 million is $20 million shy of what analysts expect for the year. Investors can conclude that a big reason for this underperformance can be attributed to Q1, in which Tableau's guidance was $15 million short of the consensus. Tableau's full year and Q1 guidance thereby imply that management expects execution to improve and for the business to have a strong back half to 2016.

Therefore, with DATA now trading with a market cap of $2.5 billion, and its price to FY2016 sales at a post-IPO low of less than 3.0, value investors might conclude that DATA stock is a good buy right now. After all, DATA is still worthy of a growth premium, with 30% growth in 2016 still very impressive. However, I would not make that move just yet.

This is a market that has been very unforgiving to momentum stocks so far this year. Even companies that are cheap whose prospects have improved significantly in recent months have been punished. Just look at Twitter (NYSE:TWTR).

TWTR stock has fallen 27% this year and is down 68% from its 52-week high despite cutting costs with a 7% reduction in headcount and recently announcing plans to monetize the 500 million users who are logged off - those who see tweets but don't have an active account. These two moves clearly improve the margin and revenue growth outlook for Twitter, but the market does not care.

In many ways, what TWTR has gone through reminds me a lot of what DATA faces right now. If you think back, TWTR's descent started with an 18% intraday loss on April 28 of last year, in response to lackluster earnings and guidance. TWTR then saw another double-digit move lower in July after reporting second quarter earnings. Hence, two bad quarters that caused significant stock loss resulted in a complete reversal of shareholder sentiment, and it has been ugly ever since, with Twitter unable to gain back investor trust.

Albeit, what TWTR has gone through seems very similar to what DATA may face. Tableau just had a bad quarter (guidance) and Q1 is not looking good either (two consecutive bad quarters). Therefore, it is tough to imagine shareholder sentiment reversing higher from this point forward.

For those seeking light at the end of the tunnel, you might find security in the fact that DATA is now trading at very similar price/sales multiples of TWTR. Thus, it may not have as far to fall from this point forward. Regardless, with sentiment clearly negative, it is tough to imagine DATA being a good investment even if it is not a bad investment, implying a best case scenario of DATA being dead money for some time to come.

The bottom line: Tableau is well deserving of one bad quarter and the benefit of the doubt. However, DATA stock is not worth your investment - not right now, not in this market.

Disclosure: I am/we are long TWTR.

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.