Tableau Faces Increasing Competition

| About: Tableau Software (DATA)

Summary

Analysts are concerned about Tableau's inability to generate profits despite strong revenue growth.

Increasing competition from the likes of Microsoft, pricing pressure, top management changes, and profitability issues are some of the challenges facing Tableau.

Will the company be able to overcome these challenges?

According to Gartner, the business intelligence (BI) and analytics market is in the final stages of a multi-year shift from IT-led, system-of-record reporting to business-led, self-service analytics. Global revenue in the BI and analytics market is forecast to grow 5.2% over the year and reach $16.9 billion in 2016.

Tableau Software's Financials

Tableau Software's (NYSE:DATA) second-quarter revenues grew 32% over the year to $198.5 million, ahead of the Street's forecast of $193.75 million. GAAP net loss was $47.5 million or $0.64 per share compared to a $19.0 million or $0.27 per share a year ago. Non-GAAP net income was $0.3 million, or $0.0 per share compared to analysts' projected earnings of $0.05 per share.

By segment, License revenues grew 20% to $116.3 million and Maintenance and Services revenues grew 55% to $82.2 million. International revenues grew 55% to $57.1 million and accounted for a record 29% of the revenue.

During the quarter, Tableau added more than 3,900 new customer accounts, including the California Department of Public Health, Bank of California, and the City of New Orleans. It currently has more than 46,000 customers. It signed 332 sales orders greater than $100,000, up from 233 a year ago. It had 16 customers spending over $1 million in the quarter.

However, its expenses were higher than it had expected. Operating expenses ballooned to $220.54 million, an increase of 56% and higher than its revenue for the quarter. Sales and marketing expenses grew 41% to $119.9 million while R&D expenses grew 64% to $77.5 million. Analysts are concerned about Tableau's inability to generate profits despite strong revenue growth.

For the third quarter, Tableau forecast revenues of $210 million-$215 million, a growth of 26% and non-GAAP earnings of $0.04 to $0.09 per share. It expects to end the year with revenues of $825 million-$840 million, lowering its guidance yet again from $835 million-$855 million. Non-GAAP earnings for the year 2016 are expected to be in the range of $0.18 to $0.31 per share.

Tableau Software's New Offerings and Partnerships

Tableau is excited about its latest release of Tableau 10 which will include data integration or mashups of data from multiple different sources, the addition of many different new advanced analytics including drag-and-drop clustering, greater mobile responsiveness, and new capabilities for developers. It also will have an analytics version control feature.

Data integration across data sources was seen as a weakness in its earlier versions. With the addition of data mashups, Tableau 10 enables users to connect to any data source and combine it with any other data source with a simple point-and-click action. A user could now work with SQL Server, Oracle and Hadoop as a single integrated data source.

Tableau also announced new data analytics learning partnerships with Lynda.com, Pluralsight, Udacity and General Assembly to offer deeper training on Tableau's products. It has expanded its relationship with Informatica to easily access and integrate data across any cloud or on-premise source and quickly cleanse and prepare the data for use in Tableau.

Tableau's stock is trading at $53.19 with a market capitalization of $3.96 billion. Its 52-week high is $109.4. In February this year, it had fallen to a 52-week low of $36.60. Analysts at Deutsche Bank downgraded the stock to Hold from Buy. Deutsche Bank maintained its $65 price target, but highlighted increasing competition in the data visualization space as a sore point. Its major competitors are Microsoft's Power BI and Qlik. Power BI is one of the lowest priced solutions in the market and is putting pricing pressure on Tableau.

Tableau also is seeing some changes in its top management. Its executive vice president of sales, Kelly Wright, announced early this year that she will be retiring by the end of the year. It is yet to announce a replacement.

Increasing competition from the likes of Microsoft (NASDAQ:MSFT), pricing pressure, top management changes, and profitability issues are some of the challenges facing Tableau. Will it be able to overcome them?