Tableau Software (NYSE:DATA) is a business intelligence software company that provides customers with simple tools to analyze and visualize data and solve business intelligence issues. It makes money through software license fees and maintenance and services fees. We believe that Tableau is a strong growth story and one of the primary drivers of this growth is its growing customer base. Tableau's customers range from large corporations to sole proprietors. We recently launched coverage on Tableau with a price estimate of $103 per share, which implies a premium of around 5% to the market price.
Our Growth Projections
Tableau had approximately 4,400 customers by the end of 2010 and this increased to 26,000 in 2014.  We expect this number to be north of the 60,000 mark by the end of our forecast period, facilitated by a strong sales and marketing team that is striving for expansion in domestic and international markets. Tableau's focus on innovative products and its popularity in the market also will be a deciding factor in achieving the predicted growth. There could be a 10% downside to our price estimate if the number of customers do not grow beyond 54,000. This could happen if the business intelligence and analytics market becomes overcrowded with competing big and emerging small innovative players.
Reasons For Growth
The business analytics software industry is in the midst of a secular growth phase. The industry grew at a rate between 8% and 9% in 2012 and 2013, and this trend is expected to continue in the near future.  According to IDC, the worldwide business analytics market will grow from $37.7 billion in 2013 to $59.2 billion in 2018, which translates to a 9.4% compounded annual growth rate for the forecast period.  Within the business analytics software market, Tableau is specifically focused on developing easy-to-use and interactive data discovery platforms.
In recent years, focus has shifted in this market from traditional enterprise IT requirements to data discovery. In addition to the conventional established reports, big firms now want descriptive, predictive and prescriptive analysis performed by a larger population of administrators. We believe Tableau and other similar players are going to be more responsive to this need. Tableau has been positioned as a leader in Gartner's Magic Quadrant for Business Intelligence and Analytics Platforms for the last three years, and its business discovery platform has been a pioneer in the data discovery segment.  Tableau's in-memory technology also is a big draw for its customers. In-memory computing (IMC) technology reduces the number of data transactions required while analyzing data by storing the entire database in random access memory (RAM) which is nearer to the processor. This makes the analysis faster and more real-time and reduces complexities of the physical space requirement.
The business analytics market is overcrowded and Tableau faces intense competition from traditional vendors as well as emerging players. Traditional vendors such as SAP (NYSE:SAP), IBM (NYSE:IBM) and Microsoft (NASDAQ:MSFT) are aggressively investing in their data discovery capabilities. A number of newer companies such as Qlik (NASDAQ:QLIK), Datameer, Sisense, etc. have also entered the market and are offering new features, including data discovery, dash-boarding and data visualization. Both these types of market players pose a threat to growth in Tableau's customer base as well as average revenue per customer.
Qlik, another emerging player in the in-memory computing based business intelligence segment, has more customers than Tableau. However, Tableau has been more aggressive in R&D spending and, therefore, has been able to roll out multiple upgrades. It also has an advantage over its competitors in terms of ease-of-use and data visualization.
Disclosure: No positions.