Morgan Stanley Moves To The Sidelines On Tableau Software
- Tableau Software Inc (NYSE: DATA) shares plunged 50 percent on February 5.
- Morgan Stanley’s Keith Weiss downgraded the rating for the company from Overweight to Equal-weight, while slashing the price target from $125 to $55.
- The company is sustaining its investment ramp despite sharply decelerating top-line growth, Weiss stated.
Analyst Keith Weiss said that Tableau Software had been expected to generate robust FCF entering into 2016, backed by durable top-line growth and high incremental margins. He added, however, that recent results had indicated a top line growth profile that was “far less durable than we expected,” given the massive decline in license growth to 31 percent y/y in 4Q, from 57 percent y/y in the previous quarter.
Moreover, Tableau Software’s guidance implied a further slowdown to single-digit growth in Q1. “With new transaction volumes holding up well, it appears the slower growth stems more from a reduced ability to up sell existing customers – speaking more to macro or saturation concerns versus competitive issues,” Weiss commented.
The scenario of a sharp decline in top line was made worse by management sustaining their aggressive investment plans, with the aim of improving the company’s positioning for a large opportunity. The analyst believes, however, that Tableau Software should “take a more balanced approach to growth versus profitability,” and increased investments in sales are unlikely to bear results until “sales productivity trends firm up.”
The EPS estimates for 2016, 2017 and 2018 have been reduced from $0.98 to $(1.32), from $1.77 to $(1.07) and from $2.70 to $(0.69), respectively.
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