Tableau's Plunge Is a Cautionary Tale for Growth-Chasing Tech Investors

Less than 18 months ago, Tableau Software (DATA)  was seen as a company that could do no wrong, a fast-growing juggernaut that was at the forefront of a software wave that promised to make advanced analytics tools far more accessible and widely used in the corporate world.

Today, Tableau's story doesn't look so unblemished, and the way that it has changed should serve as a cautionary tale for investing in richly-valued, enterprise tech names in hot markets that larger peers have begun to take notice of.

Tableau, a provider of business intelligence (BI) tools that allow workers to quickly analyze and visualize data, tumbled roughly 12% Wednesday after posting mixed third-quarter results and issuing soft fourth-quarter guidance. While Q3 EPS of $0.16 beat a consensus analyst estimate of $0.07 (controlled spending helped), revenue of $206.1 million (up 21% annually) missed a $213.8 million consensus. 

On its earnings call, the company guided for Q4 revenue of $225 million to $235 million and EPS of $0.09 to $0.16, below consensus estimates of $250.1 million and $0.20. It also set preliminary 2017 revenue growth guidance of just 0% to 10%, below a consensus for 22.4% growth. Tableau cautions the guidance assumes its mix of "ratable" license bookings, for which license revenue isn't fully recognized up-front, will double in 2017.

Shares are now down 66% from a July 2015 peak of $131.34.

Tableau's license revenue, which is closely watched since it drives future maintenance revenue and acts as a proxy for adoption of its software, came in at $116.7 million in Q3, missing a $124.5 million consensus estimate. License revenue grew just 7% annually, a far cry from the 57% growth posted a year ago. Analysts now forecast Q4 license revenue of $134.2 million, down fractionally from year-ago levels.

Like many other enterprise tech firms reporting top-line shortfalls, Tableau claimed extended sales cycles for large deals hurt its sales. It also reported seeing weakness in the EMEA region, with the U.K. particularly soft.

But several analysts questioned management about the impact of growing competition, and it's not hard to fathom why. Companies such as Microsoft (MSFT) , Amazon (AMZN) , SAP (SAP) , Oracle (ORCL) and Salesforce.com (CRM) have rolled out cloud-based analytics and visualization tools, often at prices that sharply undercut Tableau. The company also faces competition from on-premise BI software provided by the likes of SAP, IBM  (IBM) and recently-acquired Qlik Technologies; many of these offerings have been reworked in recent years to appeal to a broader set of office workers.

Tableau's products are still often praised for their ease-of-use and data discovery features, but the competitive landscape clearly looks a lot tougher than it did when shares were soaring well into the triple digits last year.

Mizuho analyst Stephen Bersey, who reiterated an Underweight rating on Tableau on Wednesday, thinks Tableau is struggling to shift from department-level to enterprise-level deals, and argues that (with the exception of Tableau Server) the company's offerings "need significant redesigning in order to be true cloud-based products."

FireEye  (FEYE) can probably sympathize with Tableau's woes. The security hardware, software and services provider, once hyped as a cybersecurity pioneer, is down 88% from a March 2014 peak of $97.35, and 79% from a 2015 high of $55.33, amid sales execution woes and stiffer competition for the company's malware-detection offerings from the likes of Cisco Systems (CSCO) and Palo Alto Networks (PANW) .

Cisco is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells CSCO? Learn more now.

Flash storage system vendor Pure Storage (PSTG)  can also relate. Its shares are down 32% from its 2015 IPO price of $17 amid worries that sales growth (though still healthy for now) is being pressured by intensifying competition from storage incumbents such as EMC, NetApp, HP Enterprise (HPE) and IBM (IBM) . These companies are now quite aware of flash's disruptive impact on the enterprise storage market, and are intent on not being blindsided by it.

The final chapter hasn't been written on Tableau, FireEye or Pure Storage, of course. And there are certainly enterprise upstarts that have successfully fended off the incursions of IT giants. Often, they've done so in part by turning their products into platforms that are hard to dislodge. Palo Alto, for example, has gotten customers hooked on popular subscription services that work with its security hardware. And machine data analytics software leader Splunk (SPLK) has created a large ecosystem of third-party apps and add-ons that work with its products.

Cloud software upstarts such as Salesforce (CRM) , Workday (WDAY) and ServiceNow (NOW)  have also been able to fend off the incursions of large, deep-pocketed rivals. This might partly stem from the fact that many businesses are less nervous about committing to software from relatively smaller firms if it won't need to be ripped out of their on-premise infrastructures, should they decide to stop using it.

But looking at the broader enterprise tech landscape, it's often a good idea to tread carefully with high-flyers that have been awarded steep multiples due to a leadership positions in a fast-growing market. Especially if one starts seeing a deluge of announcements from bigger companies indicating that they, too, want a piece of that market.

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