Tableau Software's (DATA) - Get Report launch of a cheaper version of its analytics and data visualization software is helping drive an uptick in large deals and subscriptions, its new CFO told TheStreet.
Last Thursday, Tableau beat Q2 estimates and -- while noting a shift in its sales mix from up-front software license payments to subscriptions is affecting its near-term revenue and margins -- issued mixed guidance. Q3 revenue guidance was in line with consensus estimates, and full-year revenue guidance was favorably narrowed to a range of $965 million to $985 million from a prior range of $950 million to $985 million.
However, Q3 EPS guidance was below consensus, and Tableau lowered its full-year operating margin guidance by two percentage points, to a range of negative 4% to negative 5%.
Both the top and bottom-line guidance relies on older ASC 605 accounting rules. Using ASC 606 rules, which Tableau and many other firms recently adopted, serves to increase both Tableau's revenue and losses over the near-term. In Q2, revenue totaled $243.6 million on an ASC 605 basis (up 14% annually), and $282.3 million on an ASC 606 basis.
Disappointment with the guidance led Tableau's shares to drop nearly 6.7% on Friday, before rising 1% on Monday and falling slightly on Tuesday morning. Shares are still up 50% on the year.
Following Tableau's report, TheStreet had a chance to talk with Damon Fletcher, who was named the company's permanent CFO in mid-July after having served as interim CFO since February. Here's a recap of some of the topics discussed:
1. The Shift to Subscriptions
On its earnings call, Tableau noted that 67% of its Q2 license bookings are being recognized on a ratable basis rather than fully up-front, thanks to strong subscription plan adoption. That's at the high end of a guidance range of 62% to 67%, and far above a level of 26% in Q1 2017, which was the last full quarter before Tableau officially launched subscription plans for its software.
Tableau also guided for its ratable license bookings mix to be in a range of 68% to 71% during the back half of the year. The recent pickup in subscription activity follows the April launch of both data-preparation software and a new Viewer plan for Tableau's core software that's aimed at regular office workers. Whereas Tableau's most powerful solution (known as Creator, it's aimed at data scientists and power users) costs $70 per month and its mid-tier solution (known as Explorer) costs $35 to $42 per month, Viewer goes for just $12 per month.
"Viewer... opens the door to large-scale deployments for many of our customers," Fletcher said. As evidence, he cited the increase in large deal activity that Tableau saw in Q2. The company closed 436 $100,000-plus deals and 22 $1 million-plus deals during the quarter, which is up from 372 and 15 a year earlier.
Viewer might also put Tableau on better competitive footing against Microsoft (MSFT) - Get Report , which charges just $10 per month for the Pro version of its popular Power BI analytics and visualization software. Microsoft also sells a less powerful Premium version of Power BI that's priced based on the amount of content it supports, and bundles Power BI Pro with its most costly enterprise Office 365 plan.
2. Cloud and Linux Adoption
Tableau's software can either be deployed on a company's local infrastructure, hosted on Tableau's infrastructure or deployed on a third-party public cloud platform such as Amazon Web Services (AWS) or Microsoft Azure. Though cloud adoption is growing -- Tableau previously said about a third of its new software activations involve public clouds -- Fletcher indicated a "predominant amount" of Tableau's mix shift towards subscriptions has involved on-premise usage.
"Many customers still prefer... to deploy Tableau behind the firewall," he noted. He added that small and mid-sized businesses were more likely on average to deploy Tableau in the cloud than large enterprise clients, due to a wish to avoid large investments in their on-premise infrastructures.
Regarding the January launch of a version of Tableau's server software that runs on Linux (it was previously available only for Windows-based systems), Fletcher said there was a lot of pent-up demand for the product, in part because of its cost-effectiveness for cloud deployments. "If you're deploying in a public cloud environment...then your cost is significantly lower" to use Linux, he asserted. Red Hat (RHT) - Get Report , for its part, disclosed last November its Linux revenue involving public cloud partners has topped a $200 million annual run rate.
3. The Competition
When asked about which rivals Tableau sees most often when competing for deals, Fletcher noted that outside of Microsoft, Tableau most frequently squares off against traditional business intelligence (BI) software firms. This is a group that has historically included names such as SAP (SAP) - Get Report , IBM (IBM) - Get Report , SAS, MicroStrategy (MSTR) - Get Report and Qlik Software, some of which have made progress towards modernizing their software than others.
Fletcher added that many of Tableau's battles against traditional BI firms don't involve directly competing for new deals, but rather trying to convince companies to replace older BI tools (often a bunch of them) with Tableau's. Also mentioned: Relative to the traditional BI players, Tableau competes less against the "vertical" offerings of business app vendors such as Salesforce.com(CRM) - Get Reportand Workday(WDAY) - Get Report, which have created modern analytics apps that integrate with other software of theirs.
4. Natural-Language Queries and Machine Learning
In the 2018 version of its Magic Quadrant report for Analytics and Business Intelligence platforms, research firm Gartner arguably gave Tableau the second-most prestigious ranking out of the 20 companies discussed in its report, behind only Microsoft. Among other things, Tableau's software was given high marks for its visualization tools, flexible deployment options and high levels of customer usage and satisfaction.
However, Gartner did criticize the extent of Tableau's support for complex data models. And it suggested the company has been "later to invest" than rivals in natural-language query (NLQ) solutions that make it easier for non-technical users to uncover insights, as well as in "augmented analytics" tools that use AI/machine learning to automatically surface and/or visualize insights.
Fletcher insists both fields are now priorities for Tableau. The company bought natural-language processing startup ClearGraph in 2017, and recently followed that up by acquiring Empirical Systems, a developer of tools that automate statistical analysis and data modeling. Regarding its NLQ efforts, Fletcher argued that they're a natural extension of Tableau's historical attempts to make analytics easier to use for regular corporate workers. "If you offer that type of service to our customers, more and more people who would be scared off by a drag-and-drop experience" will use the software, he said.
This column originally appeared on August 6 on Real Money, our premium site for active traders. Click here to get more great columns like this.