Back in the summer of 2013, Tableau Software Inc (DATA) pulled off one of the year’s hottest tech IPOs. The company priced its deal above its range and also boosted the shares issued. So on the debut, DATA stock spiked by 63%.
In fact, the good times would continue for investors. Consider that DATA stock would go from $31 to a high of $131 last year.
But unfortunately, as is common for hyper-growth tech plays, the situation for the company has suddenly gone haywire. Last week, DATA stock plunged nearly 50% on a dicey earnings report. And yes, the deterioration has continued, with the stock price now at $40.
Yes, the three-year return on the IPO is now a mere 29%!
But then again, maybe there is a value opportunity here?
The Data on DATA Stock
To help answer this question, let’s first get some background on the company. Founded in 2003, Tableau has quickly turned into one of the top players in the so-called business intelligence (BI) market. This involves using sophisticated technologies to capture huge amounts of data and provide analytics, which often help allow for better business decisions.
All in all, Tableau has had little problem finding customers for its offerings. In the latest quarter, the company snagged over 3,600 new accounts, bringing the total to over 39,000. There has also been lots of traction for Tableau in global markets.
Keep in mind that the international customer base is at about 17,000 across 150 countries.
At the same time, Tableau has been effective at increasing the deal sizes. For the fourth quarter, the company signed up 414 new orders in excess of $100,000, which was a record. There were also over 20 customers that spent over $1 million in the quarter.
OK, in light of all the good news, why are investors getting antsy? The problem is that it appears that the growth ramp is decelerating. And yes, this is poison for any hot growth company.
Keep in mind that the annual guidance is now for revenues of $830 million and $850 million, below the prior forecast of $845 million to $865 million. There will also likely be more pressure on the bottom line, with the earnings expected to range from 22 cents to 35 cents a share. Yet the Street was looking for 57 cents a share.
Now it seems that Tableau is placing the blame on weakening macro conditions. According to the earnings call, CFO Thomas Edward Walker said:
“Despite our strong metrics, we saw some softness in spending, especially in North America. We did see our customers continue to expand their use of Tableau in their organizations, but not at the same cadence we historically experienced.”
However, while there is certainly concern about the global economy, this may not be the full story for Tableau. For the most part, the company is facing much more competition. With the surge in venture capital over the past few years, there are a host of startups gunning for the BI opportunity. But there are also capable older operators like Qlik Technologies Inc (QLIK), International Business Machines Corp. (IBM), SAP SE (ADR) (SAP) and MicroStrategy Incorporated (MSTR).
Yet perhaps the biggest issue is Microsoft Corporation (MSFT). The fact is, that company’s aggressive push into the cloud is getting results. And this is likely helping to bolster its Power BI offering, which is a rival to Tableau.
Interestingly enough, Microsoft CEO Satya Nadella said this on the fiscal Q2 call: “Our cloud architecture reflects real world distributed cloud computing needs and services that enable businesses to convert data into intelligence and drive business transformation.”
Bottom Line for Tableau
Basically, the problems for Tableau may be much more fundamental. Let’s face it, MSFT has a tremendous global brand and can integrate its offerings within its massive platform. The company also has the operating leverage to offer much more competitive pricing.
Besides, DATA stock is still far from cheap, with the forward price-to-earnings ratio at about 64X.
In other words, there can still be more risk of downside, especially given the intense pressure from MSFT and other tough competitors who see BI as a very important strategic market opportunity.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
