Does Tableau's Valuation Make Sense?

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Tableau Software (NYSE: DATA  ) is one of the hottest names in big data. The company helps businesses process, read, and react to data more effectively. But as investors take big bets on Tableau's future, is it possible that more upside can be found in peers Tibco Software (NASDAQ: TIBX  ) or Qlik Technologies (NASDAQ: QLIK  ) ?

What is big data?
Big data offers services that make life easier for a company's customers, creates platforms where information can be stored in the cloud, and gives businesses and their employees access so they can better interact, engage, and understand industry- and company-related data.

One segment of this space is called data visualization, and this is an area where Tableau has thrived in the last year due to its user-friendly platform. The company competes directly with other data-visualization companies like Tibco and Qlik.

A little perspective
There's no debating that Tableau had an exceptional quarter earlier this month: The company saw revenue growth of 94.9%, which was an acceleration from its prior quarterly growth of 90%.

Not to mention, in an industry plagued with intense competition and heavy spending, profits are rare. Yet, Tableau managed to earn a non-GAAP net income of $14 million, a very impressive feat.

However, regardless of Tableau's mind-boggling growth and its 1,800-plus new customers added in a three-month span, investors must still be concerned about its valuation.

Tableau saw quarterly revenue of just $81.45 million, and in 2014, analysts expect the company to take in $327 million in revenue. Yet, the stock trades at 17 times future sales.

To put this in perspective, Tableau's competitors Tibco and Qlik, combined, have a market capitalization of just $5.7 billion -- comparable to Tableau. But together, they are expected to generate revenue of $1.7 billion in 2014.

Essentially, Tableau is worth just as much as the combined valuations of two competitors that alone are significantly larger. Therefore, investors are taking massive bets on Tableau to not only maintain growth, but to own this data-visualization space in the future.

The problem is that Qlik and Tibco are not bad companies
Tableau's advantage is that it has become appealing to large customers, and that its platform provides interactive data that is easy to use. However, these companies all offer similar services at different prices, and platforms from all of these companies are becoming more user-friendly with time.

Qlik provides data-visualization platforms to small and medium-sized businesses to integrate and store data to be shared across various work groups and divisions. Thus, Qlik allows users to make more informed business decisions.

For this upcoming year, Qlik is expected to grow by 18%, with sales of $550 million. At 4.25 times expected revenue, it is much cheaper than Tableau. The only negative is that Qlik is not profitable, having an operating margin of near zero, due to high costs. However, peer Tibco is very profitable, with operating margins of almost 15%.

Tibco is a leader in business optimization and process management, providing platforms to integrate and analyze operational data. While its expected revenue growth is much smaller at 8%, this is a company generating more than $1.1 billion in sales, trading at just three times forward revenue.

As a result, given the size, value, and growth rates of these companies, it is hard to validate an investment in Tableau despite its rapid growth. In fact, investors must acknowledge that there are no guarantees Tableau will ever reach $550 million or $1.1 billion in annual sales, much less carry the growth rates of its peers Qlik or Tibco if the same fundamentals are ever earned.

Final thoughts
The business intelligence market is estimated to be worth more than $13 billion, and big data and cloud services are rapidly becoming a larger piece of this pie. With that said, Tableau is believed by many to be a top investment opportunity within this space in the years ahead. However, it is already priced for greatness, and is still very much unproven.

Investors might be better served by looking at one of Tableau's peers, such as Tibco or Qlik, two companies with impressive growth and valuations that still allow for further upside. However, given Tibco's impressive margins, 8% growth rate, and cheapest valuation multiple, it might be the safest and best investment for the future.

The bottom line: It appears Tableau has reached a valuation beyond reason, and most likely, this won't end well for investors who were late to the game.

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Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 13, 2014, at 9:54 AM, albyhwnd wrote:

    Hi, I'm a Business Intelligence analyst and I have to say that Tableau completely blew my mind, it's a total game changer in the industry.

    Qlik isn't a bad product but we stopped using it because we had issues with performance due to the fact that it needs to own all the data inside its in-memory database. If you're dealing with large data sets, you will have to invest a lot of money in RAM and still it could be not scalable a few months later. In the other hand, Tableau has a very elegant approach, connecting "live" to the sources (including big ones like Hadoop or Teradata).

    In my opinion, Qlik and Tibco still have a long road to catch up with Tableau but it could be too late if Tableau becomes the standard tool in the industry (at the moment I would say that it is in an early adoption phase)

  • Report this Comment On February 19, 2014, at 1:26 PM, SWSales100 wrote:

    I'm sorry, but someone needs to set the record straight here. QlikTech has dozens of VERY large global enterprise deployments in all verticals - some with up to 50k users and many that continue to grow. QlikTech has 30k customers 100 countries and many are SMB like the FR above, but the growth is really in the enterprise space. Tableau is much more of a desktop tool and is great for visualizations - QlikView is a business discovery platform that is exceptional for visualizations as well, but has other valuable features. The space all of these vendors play in is Business or Data Discovery and it was pioneered by QlikTech according to Gartner. There is PLENTY of upside for Qlik, Tableau and Tibco; the traditional BI vendors are the ones that need to worry. Yes, I am affiliated with QlikTech.

  • Report this Comment On February 19, 2014, at 2:46 PM, SWSales100 wrote:

    Oh, and Tibco sells a lot more than BI/BD software - Spotifre is their tool in this space.

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Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

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