Is Tibco Software Fatally Flawed, or Just Misunderstood?

Shares of TIBCO Software (NASDAQ: TIBX  ) fell through the floor on Friday morning following a strong fourth-quarter report with surprisingly soft forward guidance. As a longtime Tibco analyst and more recent shareholder, I had to know more about the story behind these confusing numbers.

Tibco's founder and CEO Vivek Ranadive, speaking at the TUCON 2013 conference in November.

So I got Tibco's founder and CEO Vivek Randive on the phone to sort things out.

First, I asked him how Tibco managed to beat earnings estimates even though the highly profitable license segment only met his own guidance. After all, that left the lower-margin services division to do some heavy lifting, which should be bad for margins and bottom-line profits overall. Right?

Vivek explained:

Some of the revenue that we classify under services is actually licenses. So we need to, at some point, start sorting that out. Also, we had a high level of utilization in the service division, so we had a high level of profitability there.

Then I turned to Tibco's gloomy first-quarter guidance. Why so conservative when the company is beating estimates today, and looking at exciting long-term growth ahead?

According to Vivek:

What the numbers don't show is the great strength we see in the business. On Black Friday, 80% of U.S. shoppers were touched by our software. Every retailer, every grocer, every airline. So we're making that transition from being a financial services firm to being a company that really touches everybody.

Moreover, the first quarter is seasonally challenged, and Vivek likes to keep guidance on the conservative side.

Tibco shares plunged 12% on this report, and have barely moved over the last year. How should investors like yours truly think about Tibco's business opportunity at this point?

"If you look at [visual data analysis rivals] Palantir and Tableau together, they are smaller than Tibco is," Vivek said. In fact, Tibco's Spotfire visualization product alone boasts higher sales than all of Tableau. Vivek continued: "I find it ironic that Palantir is valued at $9 billion and Tableau at $4 billion. I feel like people are not getting what I'm building over here."

Eager to clarify what this means, he said: "At TUCON, you saw Kohl's (NYSE: KSS  ) , Macy's (NYSE: M  ) , Nordstrom (NYSE: JWN  ) , Best Buy, (NYSE: BBY  ) FedEx (NYSE: FDX  ) , United Airlines (NYSE: UAL  ) , Procter & Gamble (NYSE: PG  ) ... You saw all these big names out there, and they're all basically betting their futures on Tibco."

If these industry giants are betting big on Tibco's tools, why shouldn't investors follow suit? But again, you can't tell this from the numbers alone, he reiterated. Tibco is busy building the foundation of a healthy long-term business, and it just takes time before you see concrete results.

I hung up the phone with the sense that Vivek Ranadive still has a good thing going in Tibco, and that the stock will come around to reflect this reality sooner or later. Patience is still a virtue, and long-term investing is the name of the game.

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