2 Reasons Buying Tableau Software Shares Has Become Riskier

Wunderlich’s Bill Choi believes that there could be two reasons for higher risk of earnings volatility for Tableau Software Inc DATA.

Choi downgraded the rating on the company from Buy to Hold, while lowering the price target from $58 to $50.

Risks

“While growth expectations have been reset for this once hyper-growth company, we see an elevated risk of earnings volatility due to: 1) a fast-evolving competitive landscape, and 2) business model shift to ratable subscriptions that could last a few years,” the analyst explained.

Despite a loyal customer base Tableau Software continues to be vulnerable to potential market share shifts, given that multiple analytics tools are uses by enterprises, with several being cheaper and specifically meant for particular data sources.

“Some customers also prefer DATA's on-prem products, which could elongate the business model shift. We would like to see a repeatable template for closing large enterprise-level agreements with existing customers before getting more constructive on DATA,” Choi stated.

Despite having a robust front-end visualization functionality, the analyst noted that there had been complaints from customers’ IT organizations regarding Tableau Software’s integration on the back end, especially related to difficulty in accessing data from various different data storage and warehousing sources.

Competition

In addition, with Amazon.com, Inc. AMZN and Microsoft Corporation MSFT, “not being tied to any one data source has been to Tableau’s benefit, but nearly every enterprise software company is investing in analytics and visualization tools within its own platform, potentially reducing demand,” the analyst added.