Tableau Software Needs Some Disruption In Its Sales Organization

While Tableau Software Inc (NYSE: DATA) faces potential sales transition risk moving forward, the company is expected to report in-line results for its first quarter, according to a note from Brean Capital.

Expected Q1 Numbers, Guidance

The Seattle, Washington-based provider of business intelligence software will report its first-quarter numbers on May 5. Wall Street, on an average, expect a loss of $0.09 a share and revenue of $163.97 million.

"We are expecting at least in-line F1Q, driven by positive business trends in North America and continued expansion into international markets," analyst Yun Kim wrote in a note.

Need For Sales Reorganization Overhaul

However, Kim warned that the company needs a massive sales reorganization to cater large deals in the sector, a move that could make the results "volatile" over the next couple of years.

Related Link: Tableau Launches New Data Center In Dublin, Ireland

Kim's industry checks indicate that Tableau's "target market (self-service business intelligence) is entering a mass market adoption stage, resulting in larger, enterprise-wide deployments." Although this is a positive read-through for Tableau, the opportunity also comes with complexity of larger deployments and the required transition to manage flow of large deals.

"From our experience, such execution issue takes time to resolve because it requires a new approach to sales processes and also involves rebuilding the sales organization with sales personnel who can execute on large deals," Kim noted.

The analyst also noted "potential transition risks related to incoming head of sales implementing new sales methodology and changes to the organizational structure" following the departure of its current sales head, Kelly Wright, by the end of the year.

Further Risks

Meanwhile, Kim added that the stock faces "additional risks" from Tableau's decision to continue investing heavily, which may pressure margins.

"While we agree with the company's decision to invest heavily given the market opportunity ahead, we believe that it could take a more disciplined approach to investing for growth, especially given lowered growth prospects going forward," Kim elaborated.

The company plans to spend $100 million in capex this year, which represents 2x what it spent last year, while ramping up its sales and marketing channels, and hiring top sales talent to close large deals.

Kim noted that the current investment plans call for non-GAAP operating margin to be down to 3–5 percent range this FY from 10 percent level in FY15.

Looking ahead, the analyst expects Tableau could provide at least in-line F2Q year-over-year revenue growth estimate of 30 percent and at least maintain its previously issued FY16 revenue growth guidance of 27–30 percent.

"We believe shares are currently fairly valued until we see signs that DATA is successfully making the transition to an enterprise-ready platform company that can consistently execute on large deals, especially in its North American region," said Kim, who rates the stock Hold.

At time of writing, shares of Tableau were up 0.41 percent on the day at $51.91.