In 2020, the world will generate 50 times as much data as it did in 2011. To make sense of this flood of new information, Tableau Software (DATA) is building a business intelligence platform to help people better see and understand data. This allows decision-making managers to more quickly notice trends, or supporting analysts to more quickly notice outliers.
As I noted last quarter, Tableau is transitioning its business model. Rather than selling perpetual licenses where customers pay a one-time up-front fee, it is now encouraging continual subscriptions where customers pay monthly and automatically receive software updates. This transition sacrifices up-front revenue, but makes it easier for Tableau to expand its presence within larger enterprises.
Rapid growth from existing customers is a formula for success for an enterprise software company, which could provide a lucrative recurring revenue stream and boost operating margins. Let's take a closer look at Tableau's business transition and its recently reported third-quarter results.
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Tableau Software results: The raw numbers
| Metric | Q3 2018 | Q3 2017 | Year-Over-Year Change |
|---|---|---|---|
| Revenue | $290.6 million | $214.9 million | 35% |
| Operating income | ($15.2 million) | ($49.0 million) | N/A |
| Earnings per share | ($0.26) | ($0.59) | N/A |
Data source: Tableau. EPS is on a fully diluted basis. As of Jan. 1, 2018, Tableau revenue is reported and recognized using the new accounting standard ASC 606. Q3 2017 is reported using ASC 605, which may not provide a direct year-over-year comparison to the current quarter's results.
What happened this quarter?
Tableau added lots of new customers this quarter, and continued to transition existing customers to its subscription-based offering.
- Tableau added 3,800 new customers in the third quarter, bringing total customer count to 82,000.
- Annual recurring revenue (ARR, a trailing-12-month metric) was $762.6 million, up 45% over the previous period.
- Subscription annual recurring revenue was up 160% to $362.4 million, which now accounts for 48% of total ARR. This is up significantly, from 26% of ARR last year.
- On an apples-to-apples basis, third-quarter 2018 revenue using the ASC 605 accounting standard would have been $240 million. Compared to the $215 million in last year's third quarter, that was approximately 12% growth.
- Ratable license bookings mix (the percentage of new deals that are subscription-based rather than perpetual) increased to 81%, up from 67% last quarter.
- Excluding stock-based compensation and the amortization of intangibles, Tableau's third-quarter operating income was $90.7 million, a 21.5% margin. This is up from a 13% non-GAAP operating margin last quarter.
- The company repurchased 282,387 Class A shares for $30 million during the third quarter. Tableau is still authorized under its current program to repurchase an additional $310 million in shares.
What management had to say
CEO Adam Selipsky commented in a press release on the excitement that customers are showing for Tableau's visualization software:
It was extraordinary seeing our Tableau Community come together in New Orleans this year for our largest customer conference ever. Customers responded enthusiastically to our new product announcements, including natural language to bring analytics to even more people, and broadening the Tableau platform with enterprise-ready data preparation capabilities.
Looking forward
The shift to subscriptions is making it easier for Tableau to make the pie larger with existing customers. Subscription products can rapidly add users, and give them each a complete view of all of the work of their peers. Selipsky mentioned on the conference call that Tableau signed the largest new deal in the company's history during the quarter, which was a Fortune 500 insurance company that set up more than 10,000 users with access.
Big wins like that are worthy of attention. Large deals are very profitable, as is iterative growth at existing customers. Tableau's new subscription business model will likely continue to significantly increase adjusted operating margins.
