Business 416: Financial Statement Analysis Project

Tableau Software

Emily J. Masangcay December 2013

Table of Contents

I. Executive Summary ............................................................................................................. 1

II. Firm, Industry, and Environment ................................................................................ 3 Firm Description .............................................................................................................................. 3 Economic Climate and Outlook ...................................................................................................... 7 Competitive Environment ............................................................................................................. 10 SWOT Analysis ............................................................................................................................. 14 Porter’s Five Forces ....................................................................................................................... 15 Other Factors of Importance .......................................................................................................... 17

III. Analysis of Financial Statements .............................................................................. 19 Evaluation of Accounting Information .......................................................................................... 19 Adjustments to Financial Statements ............................................................................................ 20 Financial Analysis ......................................................................................................................... 21 Ratio Analysis ............................................................................................................................... 26

IV. Stock Valuation ................................................................................................................ 32 Weighted Average Cost of Capital ................................................................................................ 32 Estimation of Growth Rate for the Horizon Period and Terminal Period ..................................... 32 Discounted Cash Flow Model ....................................................................................................... 33

V. In-depth Analysis of Company Culture .................................................................... 35

VI. Summary and Conclusion ............................................................................................ 38 Potential as a Future Employer ...................................................................................................... 38 Credit Assessment ......................................................................................................................... 40 Common Equity Investment Potential ........................................................................................... 41 Summary and Conclusions ............................................................................................................ 43

VII. References ........................................................................................................................ 45

VII. Appendix1 ......................................................................................................................... 47 Appendix #1: Operating Lease Commitments .............................................................................. 47

1 Appendices #2-12 are not in Word Document format and will be attached behind the final printout. For the computer version, Appendices #2-12 will be included in a separate Excel file.

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Executive Summary

The purpose of the Financial Statement Project is to conduct an extensive and

comprehensive financial analysis of a publically traded company in the United States. Ultimately,

the objective of this project is to give recommendations regarding whether or not to invest in the

firm’s equity, to extend credit to the company, or to recommend the firm as an employer for

graduates from the University of Puget Sound. I chose to analyze Tableau Software for the

Financial Statement Project. Tableau Software is a Seattle based company that strives to make

data visualization easy, fun, and convenient for everyone. Tableau was founded in 2003 and

recently went public on May 17, 2013.

I recommend to invest in Tableau, extend credit to Tableau, and to consider Tableau as a

future employer. First, I advise buying Tableau stock. Although I was unable to complete a stock

valuation due to challenges I encountered with the discounted cash flow model, I believe that

Tableau is a worthy investment due to its customer list and likelihood of sustained success.

Tableau Software has an impressive customer base, including government agencies, universities,

and businesses. Furthermore, Tableau will most likely be in business for foreseeable future due

to the exponentially growing amount of data used daily in work, studies, and personal life.

Second, I recommend extending credit to Tableau. It does not have any outstanding debt since

Tableau raised all startup funding through owner contributions and eventually $15 million from

venture capitalists (Swallow, 2012). In the event that it must ask for credit, Tableau has the

financial means to repay the debt, exhibited through its rapid growth in revenue and positive net

income. Last, I recommend Tableau Software as an employer for graduates from the University

of Puget Sound. This recommendation is based off an interview I conducted with a current

employee, Jacob Furman (a UPS alumni), who speaks very highly about his experience at the

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organization. I also recommend Tableau Software as an employer because of company culture

aspects that are personally appealing to me, such as work-life balance and independence.

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Firm, Industry, and Environment

Firm Description

Brief History

Tableau Software was founded at Stanford University’s Computer Science Department in

2003. Tableau’s three co-founders are Chris Stolte, Pat Hanrahan, and Christian Chabot. Chris

Stolte was a Ph.D. student at Stanford studying visualization techniques in the early 2000s with

Hanrahan as his dissertation advisor (“Founding”). Chabot and Stolte worked together

beforehand through establishing another company, BeeLine Software (“Founding”). This

relationship allowed Chabot to become part of Tableau’s founding team as the Chief Executive

Officer (CEO). Stolte, Hanrahan, and Chabot realized that the software industry lacked a

program that makes data easily understandable and exciting to regular people. They created

Tableau to fundamentally change how people see and understand data. Growth has been strong

for Tableau since its 2003 inception. For the years ended December 31, 2010, 2011, and 2012,

revenues were $34.2 million, $62.4 million, and $127.7 million respectively (“Form S-1”, 2013).

Tableau reported $1.4 million in Net Income in 2012 and started trading on the New York Stock

Exchange after its May 17, 2013 initial public offering (IPO) (“Form S-1”, 2013).

The IPO on May 17, 2013 was for Class A common stock of Tableau Software. Tableau has

two classes of authorized common stock, Class A and Class B common stock. The rights of the

holders for both types of common stock are identical, except in regard to voting and conversion

rights. Each Class A common stock share represents one vote, while each share of Class B

common stock is entitled to ten votes and is convertible into one share of Class A common stock

(“Form S-1”, 2013). The IPO was an offer of 5 million shares of Class A common stock and

selling stockholders offered an additional 2.2 million shares (“Form S-1”, 2013). There has not

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been a public market for the Class A common stock prior to May 17, 2013. The estimated IPO

price per share was between $28 and $30, but Tableau’s opening price per share for the IPO was

$47 and closed at $50.75 the same day. Just two trading days later, Tableau’s stock price

increased to $55.11.

Because Tableau only went public in May, I have faced some challenges with this project.

First, due to the limited financial statements available online, I was only able to analyze and

compute ratios for 2011 and 2012. Second, I was unable to complete certain calculations, such as

the Altman-Z score and stock valuation, due to the nature of my company and lack of available

information online. Third, it has been difficult to benchmark Tableau against market competitors.

This difficulty arises because of Tableau’s unique but narrow product line.

Although I faced numerous challenges, there have also been advantages in analyzing a

company that recently went public. I learned alternative methods of calculation that other

students in Business 416 did not get exposed to. For example, I learned about various methods of

valuating stock using a market-based multiplier. Furthermore, because I had only two years of

data, I had the opportunity to focus my time on getting to know and using Tableau Software. I

now use the data visualization tools for classes and work assignments, so the advantages from

this project have exceeded well beyond the classroom. In fact, the graphs presented in this paper

were created using Tableau Software.

Company’s Key Strategies

Tableau Software’s goal of changing how people see and understand data is driven by three

main philosophies – liberating data, empowering people, and designing for people (“Power to the

People”). Liberating data is driven by the idea that data analysis should not be about learning the

software, but rather about asking questions and understanding the data. The co-founders of

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Tableau explain, “The most common customer complaint about analysis applications today is

that they are too hard to use. Spreadsheets become unwieldy for analysis as tables get large.

What is needed is an easy analysis interface for knowledge workers” (Hanrahan, Stolte, &

Mackinlay, 2007). By making easy-to-use software, Tableau enables people to both tell stories

and ask questions with data more conveniently. Second, empowering people is about giving the

power to people to think, act, and deliver. Most business analytics products involve relying on

specialists to help answer basic questions and convey information (Hanrahan et al., 2007).

Instead, Tableau aims to empower people by giving them the tools to self-serve themselves when

it comes to data graphics. This empowerment allows people to move their organization forward

beyond its original potential, increase creativity, communication, and productivity. Last, Tableau

designs for individuals and all types of businesses, including both profit and non-profit, small

and big businesses, private and publically held companies, and government. Tableau caters its

product designs to reach a wide range of people.

Based on my personal experience with using Tableau, I agree with its philosophy and

think that the philosophy is very obvious with the product. When I first started to use the

software, I immediately noticed how user-friendly it was. After only watching a two-minute clip

on the features of Tableau, I was able to create my own elaborate and detailed graphs without

further instruction. Data visualization becomes an easy, but incredibly fun process with Tableau

Software. I believe that the philosophy regarding liberating data, empowering people and

designing for people is both well-received by customers and well-executed by the makers of

Tableau.

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Firm Leadership

Chris Stolte is Tableau’s Chief Development Officer (CDO) and oversees product

strategy, product design, and engineering (“Leadership”). He holds a Ph.D. in Computer Science

from Stanford University and a B.S. in Computer Science from Simon Fraser University. At

Stanford, Stolte’s thesis focused on how visualization techniques can explore and analyze

databases. Polaris, an interactive visualization tool which became the basis for Tableau’s first

product, resulted from his thesis (“Founding”). Stolte’s research merited fourteen research

publications and two large visualization systems. Another software company that Stolte co-

founded (with fellow Tableau co-founder Christian Chabot) is BeeLine Systems, which develops

a revolutionary map rendering system (“Leadership”). Furthermore, Stolte is the co-inventor on

five software patents related to information visualization. Tableau’s products stem from Stolte’s

visions, as he is responsible for the engineering, design, and strategy division.

Pat Hanrahan is Tableau’s Chief Scientist. Prior to founding Tableau, he received a Ph.D.

in Biophysics from the University of Wisconsin – Madison and worked at the New York

Institute of Technology Computer Graphics Laboratory (“Founding”). Hanrahan is also a

founding employee of Pixar, where he invented technology that made it possible to bring big title

Tableau Software co-founders: Left to right: Chris Stolte, Pat Hanrahan,

and Christian Chabot (“Leadership”)

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names, such as Toy Story, to movie screens (“Leadership”). He also has teaching and research

experience at Princeton University, but he moved to Stanford University in 1995 to teach

computer graphics and research visualization, image synthesis, graphic systems, and

architectures (“Founding”). He is still a professor at Stanford today. Hanrahan’s awards include

two Academy Awards for Science and Technology, the Spirit of America Creativity Aware, and

the IEEE Visualization Career Award (“Founding”). He was Stolte’s Ph.D. advisor at Stanford

University. Because Hanrahan is very experienced in both work and research, he brings a lot of

knowledge and wisdom to the founding team in guiding Tableau’s mission and success.

Christian Chabot is Tableau’s Chief Executive Officer (CEO) and has led the company to

ten consecutive years of increasing sales and growth. His education experience includes a B.S.

from Stanford’s School of Engineering, an MBA from Stanford, and an MSc from the University

of Sussex (“Founding”). Before co-founding Tableau, he worked at Softbank Venture Capital,

specializing in enterprise software. He co-founded BeeLine Software with Stolte as well

(“Leadership”). Chabot also spent years analyzing data studying entrepreneurship at Stanford. As

the CEO and the only co-founder with an MBA, Chabot is the backbone of Tableau’s

management style and is responsible for company growth, direction, and success.

Economic Climate and Outlook

Tableau’s economic climate is highly affected by macroeconomic factors such as

technology advance, inflation, and interest rates. Technology advance is crucial, especially for a

software company, to stay ahead of competition. Tableau needs to update its products

occasionally to reflect quality and modern software. For example, Microsoft releases updated

versions of Microsoft Office typically every three years. Tableau Software should follow a

similar path in order to remain a solid competitor and software option to consumers. Second,

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inflation impacts every corporation and Tableau is not an exception. Tableau stated that it “did

not believe that inflation had a material effect on our business, financial condition or results of

operations in the last three years” (“Form S-1”, 2013). However, if costs were to suddenly

become subject to inflationary pressures, Tableau mentioned that it might not have the means to

offset the higher costs with higher prices (“Form S-1”, 2013). The inability to offset higher costs

could potentially harm Tableau. Last, interest rates affect the cost of debt and equity capital.2

Interest rates also affect interest expense, since interest expense is determined by interest rates

charged on debt financing times outstanding debt. Future interest rates are affected by

macroeconomic factors, such as the loanable funds market and money supply. For example, if

the supply of loanable funds decrease or demand for loanable funds increase, the interest rate

will increase. The company’s financial health, financial performance, riskiness of the firm (beta),

and company management also affect interest rates. The macroeconomic factors (i.e. loanable

funds market and money supply) that impact interest rates are out of Tableau Software’s control,

so Tableau’s management team should focus on the other factors listed above to prevent a

dramatic increase in interest rates.

Tableau Software’s economic climate is equally affected by microeconomic factors, such

as pricing strategies. Pricing strategies deal with the price that companies charge and how that

can be used to attract consumers to buy the product. Tableau Software offers three types of

products; an online edition, personal edition, and professional edition. The online edition is a

hosted version of Tableau Software and costs $500. The professional edition accommodates any

type of data and costs $2,000 per user, while the personal edition is $1,000 but only

accommodates data stored in files. These prices reflect permanent licenses. However, Tableau

also offers 30-day free trials to any consumer interested and 1-year free trials to students. As 2 Note that Tableau Software currently does not have any debt.

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someone who is currently taking advantage of the free trial, I think it is a great idea to gain

interest from people who are unable to afford the product and to capture a larger customer base.

Without the free trial, I would not have been able to experience the software myself first-hand

and most likely would not be interested in the product at all today.

The elasticity of demand measures degree to which demand for a good or service varies

with price. If consumers have an elastic demand curve, consumers are sensitive to price changes.

Therefore, pricing strategies become very important. With an inelastic demand curve, consumers

are insensitive to price changes. I believe that Tableau’s consumers can have either an inelastic

or elastic demand curve. On the elastic side of the argument, Tableau Software can be considered

a luxury good and the product price comprises a large percentage of some consumers’ (e.g.

students and young adults) incomes. Therefore, if Tableau is not necessary and/or expensive for

people, consumers will be highly sensitive to price changes and will not buy the product if the

price is too high. On the inelastic side of the argument, there are very few substitutes for Tableau

Software. For someone who is need of a data visualization tool, price may be insignificant since

there are limited options in the market. The prices that consumers pay ultimately go back to

Tableau Software in the form of revenue.

Tableau’s revenues are categorized into two categories: Licenses & Maintenance and

Services. License revenue is one of the best indicators for the demand of a firm’s product

(Coffey, 2013). Licenses are sold to first-time/new customers or existing customers, who want

additional copies of software for their organization or to upgrade their current version.

Maintenance and Service revenue is generated through fees that customers pay for training,

support, or fixes to maximize the potential of a product (Coffey, 2013). As software becomes

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more complex and new upgrades are released, consumers generally demand more maintenance

and service.

Other microeconomic factors that impact Tableau Software’s economic climate are

variable vs. fixed costs and market structure (e.g. perfect competition, oligopoly, or monopoly).

Variable and fixed costs deal with the cost structure of a company. With Tableau, there are fixed

costs to run its operation, such as rent. However, variable costs associated with distributing the

software to customers are negligible (Buxmann, Diefenbach, & Hess, 2013). Some variable costs

in the software industry could include additional labor rates for maintenance services or marginal

costs for server host fees. Tableau Software is also available via a download link, as opposed to a

physical disc, which helps minimize the marginal costs. The negligible variable costs help

increase profit, since Tableau incurs very minimal costs per additional license they sell. Last,

market structure defines the competitive nature of any industry. Types of market structure

include perfect competition, monopoly, and oligopoly. The software industry as a whole is large

and there are numerous competitors, but in terms of data visualization specifically, there are only

a few firms and software that capture the market. These include Oracle, IBM, Microsoft, SAP,

and Tableau Software. Since the market structure includes only a few competitors, Tableau has

the opportunity to be a price setter, as opposed to a price taker. However, Tableau’s competitors’

prices most likely influences Tableau’s pricing decisions to some extent.

Competitive Environment

The software industry many firms competing for success. However, for data visualization

specifically, only a small number of firms dominate the market. Two top competitors for Tableau

software include Microsoft and SAP. Most people are familiar with Microsoft Office, in which

users can take advantage of Excel to create visuals, spreadsheets, and graphs to show and

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communicate information. However, SAP’s Lumira aims to give business users the solution

needed to access and transform data in a repeatable self-serviced way (“SAP”). Lumira’s point

and click interface allows people to create data presentations without scripting, a very basic form

of programming. Lumira markets itself in a similar way to Tableau by placing emphasis on the

ease of use. I downloaded a free trial of Lumira to get first-hand experience with the product. I

can attest that Lumira is easy to use and has a very simple, self-explanatory interface. While the

learning curve is quicker for Lumira than with Tableau, this advantage may be a side effect of

the smaller number of functions available.

Market share information is difficult to compile for data visualization because this area is

a minor area in the software industry. However, Forbes published Worldwide Enterprise

Resource Planning (ERP) Software Market Share in 2012 information (Columbus, 2013). ERP is

a business management software that allows an organization to use a system of integrated

applications to manage the business (Columbus, 2013). This type of software integrates

numerous facets of a software operation, including product planning, development,

manufacturing, sales and marketing. While this diagram may not give insight for data

visualization market share specifically, it could give insight as to what firms dominate the market

in other measurements for software.

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Diagram 1: Worldwide ERP Software Market Share, 2012

There is no true competitor for Tableau Software, mainly due to Tableau’s narrow

product line. What makes Tableau Software unique, but and difficult to compare to others, is that

its sole focus is data visualization. Its competitors, such as SAP and Microsoft, produce many

other products in addition to the data visualization tools of Excel and Lumira. In the whole

software industry, it is clear that Tableau Software does not own majority market share. However,

in terms of data visualization alone, it is difficult to say if Tableau has a large market share

compared to its competitors because of the lack of clarity in market share measurement. Instead,

the companies can be compared using percent changes in revenue. Below is a chart that

compares the revenue growth from 2010-2012 for Tableau, SAP, and Microsoft. The chart is

depicted in percentage terms rather than actual dollars to account for differences in firm sizes

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and time in the industry. Tableau is experiencing incredibly rapid growth right now in

comparison to its competitors, especially since its revenue grew over 100% from 2011 to 2012.

Diagram 2: Revenue Growth % from 2010-2012

I also conducted an analysis of competitive strengths and weaknesses analysis to further compare

and contrast Tableau, SAP, and Microsoft. Since my project is specific to data visualization

software, the analysis below is directed specifically to Tableau Software, Excel, and Lumira.

Diagram 3: Comparison of Tableau Software, Excel, and Lumira Program Competitive Strengths Competitive Weaknesses Tableau Software • Training on site, online, and in major

cities • Can easily transfer work from a

computer to a tablet

• Slows down with larger data sets

• Risk and uncertainty since Tableau is new

Excel • Dominant in data storage3 • Lacks functionality in tablets and mobile phones

3 Customers often rely on Excel to store their data. This preference for data storage keeps Excel in business, even if customers utilize Tableau Software or Lumira for data visualization.

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• Household name; very popular and well known compared to competitors

• Less visualization features and options available

Lumira • More powerful predictive analytics capabilities

• Files are saved to the cloud (recovering work is easier)

• Lack of online help and videos offered to train users

• Software is unstable and sometimes shuts down when the data source is modified

SWOT Analysis

SWOT is an acronym that stands for strengths, weaknesses, opportunities, and threats.

SWOT analysis has both internal and external components. From an internal perspective,

strengths and weaknesses are analyzed, while opportunities and threats are analyzed from an

external perspective. Strengths and opportunities are positive factors for a company, while

weaknesses and threats are negative factors. Below is a SWOT analysis for Tableau Software.

a) Strengths – Tableau’s number one strength is that its software is much easier and user

friendly compared to its rivals. Furthermore, data can easily be transferred from one’s

computer to tablet in seconds, which enhances the user’s experience and convenience of

saving, analyzing, and sharing information. Third, Tableau Software has six patents on its

software, which essentially grants limited monopoly rights for 20 years. Last, Tableau’s

financials are strong, shown by the rapid growth in revenue and positive net income for

the past three years.4

b) Weaknesses – there is lots of risk and uncertainty associated with investing in Tableau

since it recently went public in May 2013. Tableau is not a household name since it was

founded only ten years ago. Its rapid growth could also potentially be a weakness if

Tableau is unable to sustain the demand for its products in the future.

c) Opportunities – Tableau has the opportunity to expand into international markets and

other major cities in North America to increase its consumer base. This expansion could 4 Refer to the “Analysis of Financial Statements” for more information.

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involve not only selling its software to more geographical areas, but also expanding its

services by offering more training sessions and support in the local markets and

languages.

d) Threats – existing rivals (e.g. IBM, SAP, Oracle, Microsoft, etc.) could modify their

already successful and existing technologies to become more attractive and easier to use

for customers. A closely related threat is that rivals will be able to mock Tableau

Software once its six patents expire in 20 years. To accommodate for this, Tableau will

have to re-apply for the patents or create something innovative to get rights to another

patent. Furthermore, Tableau’s competitors have stronger brand names and consumer

loyalty due to more experience and time in the software industry. Another major threat is

software piracy, which is the illegal copying of software programs (Coffey, 2013).

Although the United States has the lowest rate of software piracy in the world, Tableau

must realize the potential for software piracy to occur, since piracy can dramatically

reduce its profits (Coffey, 2013).

Porter’s Five Forces

Porter’s five forces determine a company’s competitive environment and are key

determinants of profitability. The five forces are: potential entrants, buyer power, supplier power,

threat of substitutes and competition. The following sections explain what each force means and

how it can be applied to Tableau Software.

a) Potential entrants concern the threat of new entrants into the market. If there are low

barriers to entry, there is a high risk of potential new entrants that can challenge an

existing firm’s business model. For Tableau, there is the possibility of potential entrants

in the market because barriers to entry are low. If another company wants to create new

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data visualization software, it would be feasible if the company has the capital and

engineers capable of doing so. While there may be a steep learning curve and startup

costs (R&D, patents, computer science training, etc.) associated with entry into the

market, there are very low variable costs after data visualization software is created.

Furthermore, because software can be distributed online and a physical brick and mortar

store is not necessary, geographical factors do not serve as a barrier to entry.

b) Buyer power is related to the bargaining power that buyers have. Buyers with strong

bargaining power have the ability to demand lower prices, delayed payment terms, and a

higher level of service. Lots of buyer power reduces both profits and sales for a firm.

With Tableau’s industry, buyers have low bargaining power. To purchase Tableau’s

software, consumers must pay on the online website first in order to have the ability to

download the software. The price point is already set beforehand, so consumers have the

option to either pay full price to get the software or not buy it at all. However, business

customers may have more bargaining power with Tableau than an individual consumer.

Because businesses typically purchase software for multiple employees, potentially on a

mass scale, Tableau may be encouraged to license their software for a lower cost per

person if a decent sized order could potentially be placed by a business.

c) Supplier power regards the bargaining power that suppliers have. Suppliers that have

strong bargaining power are able to demand both earlier payment terms and higher prices,

which inherently affects a firm’s profits and cash flow. Supplier bargaining power in

Tableau’s situation is likely high. Because Tableau is a software company, it outsources

to other companies to help develop Tableau’s final products. Tableau may not have the

capabilities alone to design all the needed codes and programs to create the end product

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in-house. Therefore, suppliers have high bargaining power because Tableau relies on

other parties to help create the data visualization tools.

d) Threat of substitutes concerns the risk of substitution. As substitute goods increase,

sellers lose the ability to raise prices, which can lower demand and thus revenue. In the

software industry, substitutes and competition are highly related since the competing

firms produce the substitutes (i.e. other types of data visualization tools). Competition

deals with already existing rivals in the industry and how firms can maintain a

competitive advantage over one another. Tableau has a number of existing rivals in the

market, and thus, substitutes. Among these substitutes and competition include software

giants such as IBM, SAP, Oracle, and Microsoft. Tableau’s differentiation technique is

that its software is easy for anyone to use, whereas the technology offerings of the

already existing rivals are usually complicated, development-intensive, staff-intensive,

slow moving and expensive. Tableau’s competitive advantage is that the data

visualization experience is much easier, satisfying, fun, and affordable for people to use.

If rivals can create simpler programs to become more user friendly, Tableau’s business

model will be challenged.

Other Factors of Importance to Tableau Software

Other factors that are important to the data visualization industry include technology

advances and intellectual property. Please refer to the macroeconomic factors section to read

about technology advances. In regard to intellectual property, Tableau Software relies on

protection of its code and program makeup to stay successful. Tableau holds six different patents,

which range from the method and systems for producing graphics, the process for forming a

visual plot graph using hierarchical structure of datasets, methods for generating marks when

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displaying data, and more (“Patents, Copyrights & Trademarks”). These patents grant Tableau

Software the right over its inventions. In exchange for protection, Tableau Software had to

disclose information about its inventions in great detail publicly. Chabot, Stolte, and Hanrahan

essentially have a limited duration of monopoly rights for 20 years. However, when the 20 years

are over and protection ends, Tableau must file again for patent protection or create new methods

for continuing its software for a new patent. When patent protection ends, competitors are will to

use Tableau’s exact methods to create or edit rivalry data visualization tools.

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Analysis of Financial Statements

Evaluation of Accounting Information

I evaluate the quality of the Tableau’s accounting information as average. Unlike most

students in the Business 416 class, I was unable to use the company 10-K. Instead, I used

Tableau’s Form S-1, which is the Securities Registration Statement, from May 2013. Tableau

recently went public in May, so the S-1 Form was the most applicable financial report for me to

use. The S-1 Form contains several pages regarding the initial public offering (IPO). While this

information is interesting to read and useful for my project, the information is very detailed and

sometimes difficult to get through at times. As someone who is more interested in reading the S-

1 Form to learn more about the company financials in general, I feel that pages regarding the

offering are beyond my knowledge in stocks. Thus, my interest was sometimes lost in these areas

in the S-1 due to my preferred focus on the overall financial statements. The material presented

is clear for the most part, but I think it could be made clearer if the market stock price (e.g. the

price found on Yahoo! Finance) represents Class A or Class B common stocks, or both. This

misunderstanding could be due to a lack of financial knowledge on my part, but Professor Paula

Wilson clarified the confusion for me. However, the S-1 Form could have made the distinction

clear too. In regard to the notes section of the S-1 Form, it is only 20 pages and I feel that its

length is reasonable to read through.

There were some implications for my project due to the financial information presented,

however. Because Tableau only went public in May, my analysis is only for years 2011 and 2012.

The Income Statement and Statement of Cash Flows contained 2010 information, but because

the Balance Sheet did not, I was only able to compute two years’ worth of ratios to keep my

analysis within consistent time frame. I was also unable to complete a stock valuation model,

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since all the models I attempted did not work with Tableau. Furthermore, the Altman-Z score

was inapplicable for Tableau Software due to the nature of my company’s industry and rapid

growth. While the project was challenging, I definitely reaped some benefits from the challenges

presented. I was provided an opportunity to take a very detailed look at the information I did

have. Specifically, I learned about 2011 and 2012 on a much deeper level compared to if I had to

analyze three additional years. I also learned about valuation models aside from the discounted

cash flow model.

Adjustments to Financial Statements

I deem that it is unnecessary to add any off-balance sheet debt to the Balance Sheet. First,

Tableau Software has operating leases, but it is unnecessary to constructively capitalize the

operating leases and make the appropriate addition to assets and liabilities. Tableau’s significant

lease agreements are for the headquarters in Seattle, Washington and an additional office located

in Kirkland, Washington. These lease agreements have a six-year term and expire in the second

quarter of 2015. Because the leases expire in the foreseeable future, there is no need to capitalize

the leases and make financial statement adjustments on the Balance Sheet. Second, as for

pensions, Tableau has the ability to make discretionary contributions to employees’ 401(k) plan

but has not done so to date. Because there are not any company contributions to date, there are

no adjustments to make to the Balance Sheet for pensions. Goodwill is also inapplicable to

consider adding on my Balance Sheet, since Tableau is unlikely to buy out another company

only after ten years since incorporation. Please refer to the Appendix to view Note 8, Operating

Lease Commitments.

I believe there is no need to add or subtract items from the Income Statement to obtain

sustainable or persistent Net Income. The items listed on the Income Statement include License

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& Maintenance and Services revenue, Cost of Revenues, Operating Expenses, Sales &

Marketing, Research & Development, and General & Administrative. These items are very

straightforward and expected for Tableau for the upcoming years. There is no reason I suspect

that any of these items would be non-applicable for Tableau in the foreseeable future.

Furthermore, while there is possibility for unusual or infrequent events to occur and thus, add

line items to the Income Statement, I believe these events most likely will not occur. Such

unusual or infrequent events can include plant shutdown costs, lease-breaking fees, or gains or

losses of a lawsuit. As stated in the previous paragraph, Tableau has a lease agreement for the

two main offices only until 2015. Since majority of company operations occur in these locations,

I do not believe there would be reason for Tableau to break their lease. Tableau is also unlikely

to shut down in the near future due to its fast growth, exemplified by the rapid revenue growth

within the past year. Lawsuits are difficult to predict, but Tableau has not had any legal trouble

in the past and I assume this trend will continue. Tableau also has a very narrow product line, so

other additions to the current Income Statement would be unexpected. Because I have not come

across compelling evidence to believe that Tableau will incur any expenses or gain a different

form of revenue in the near future, I find it unnecessary to add line items to the Income

Statement.

Financial Analysis

Common Size Income Statement and Balance Sheet

The Common Size Income Statement is an Income Statement in which each account is

expressed as a percentage of Total Revenue. This information allows for easier analysis between

companies or between time periods of a company. Revenues are divided up into two categories,

License & Maintenance and Services. The percentage of Total Revenue these categories make up

Masangcay 22

is nearly the same for both 2011 and 2012. Licensing makes up about 70% of Total Revenue,

while Maintenance and Services compromises for the remaining 30%. Total Cost of Revenues

increased from 4.5% of Total Revenue in 2011 to 8% in 2012. This change helps explain the

decrease in Gross Profit of 95% of Total Revenue in 2011 to 91.9% in 2012. Total Operating

Expenses was about 88% of Total Revenue for both 2011 and 2012. However, Operating Income

accounted for about 6.3% of Total Revenue in 2011, but only 3.3% in 2012. A similar downward

pattern is also seen in Net Income, since Net Income made up 5.4% of Total Revenue in 2011

but only 1.1% in 2012. The diagram below shows percentage of Total Revenue the major

accounts from the Income Statement represent in 2011 and 2012.

Diagram 4: Common Size Income Statement Summary

The Common Size Balance Sheet serves a similar purpose as the Common Size Income

Statement. For this analysis, all accounts are expressed as a percentage of Total Assets. Cash

and Cash Equivalents was nearly 60% of Total Assets in 2011, but 45% of Total Assets in 2012.

Masangcay 23

Accounts Receivable was 35% of Total Assets in 2012, up from the prior calculation of 26% of

Total Assets in 2011. The other asset accounts did not display any significant changes as a

percentage of Total Assets between 2011 and 2012. Total Liabilities was 61% of Total Assets

in 2011, but in 2012, Total Liabilities made up 66% of Total Assets. This change can be

attributed to Current Liabilities. Specifically, Accrued Liabilities, Accrued Compensation and

Employee Related Benefits, and Deferred Revenue make up the 5% change.

Horizontal Income Statement and Balance Sheet

The Horizontal Income Statement calculates the dollar and percent change between years

for all accounts. Total Revenues grew over $65 million (over 100%) between 2011 to 2012, but

the Total Cost of Revenues grew over 200%, which is over $7 million. The increase in cost was

mainly attributed to the large increase in the cost for Maintenance and Service. However, even

with the large increase in the Total Cost of Revenues, Gross Profit still increased by almost

100%, about $58 million. Total Operating Expenses grew by 104%, mostly due to the General

and Administrative account, which increased by 165% from 2011 to 2012. In 2012, Tableau

incurred additional expenses due to operations expansion and preparation for the IPO. Additional

expenses in General and Administrative (e.g. higher legal expenses, corporate insurance,

compliance with Sarbanes-Oxley Act, etc.) will continue to be incurred for the coming years

since Tableau is now a publically traded company (“Form S-1”, 2013). Tableau’s Provision for

Income Taxes was over 400% higher in 2012 than 2011, jumping from $500 thousand to $2.7

million. Provision for Income Taxes is based on the taxable income and the appropriate federal,

state, and foreign tax rates, as adjusted for allowable credits and deductions. As of year end in

2012, Tableau fully utilized all available federal net operating loss and R&D tax credits (“Form

S-1”, 2013). The large increase in the provision for income taxes played a significant role in the

Masangcay 24

decrease of Net Income. Net income decreased close to 60% from 2011 to 2012. The diagram

below shows a graphic representation of the Horizontal Income Statement findings for the major

accounts.

Diagram 5: Horizontal Income Statement Summary

Like the Horizontal Income Statement, the Horizontal Balance Sheet calculates the dollar

and percent change between years for all accounts. All asset accounts increased by a significant

amount and the smallest change was 30% for Cash and Cash Equivalents. Total Assets increased

by 70% (about $35 million) overall from 2011 to 2012. Half of this increase is attributed to

Accounts Receivable, which increased over $17 million (130%) from 2011 to 2012. The other

two accounts that represented majority of the change in Total Assets are Cash and Cash

Equivalents and Property and Equipment. For the liabilities section, Total Liabilities increased

Masangcay 25

by 81%, about $25 million. More than half of this increase was due to Deferred Revenue, which

increased by $14 million, about 80% up from 2011. The growth in Deferred Revenue was

primarily due to increased sales of Maintenance and Services (“Form S-1”, 2013). Accrued

Compensation and Employee Related Benefits doubled in 2012, due to growth in the number of

employees hired. The image below is from Tableau’s website and shows how their hiring has

grown in the past couple of years.

Diagram 6: Tableau’s Number of Employees (“Careers”)

Total Stockholders’ Equity grew by a tremendous amount, since Tableau was preparing for the

IPO much more in 2012 than 2011. In 2011, Total Stockholders’ Equity was negative $277

thousand, but positive $9.94 million in 2012.

Masangcay 26

Ratio Analysis

Profitability Analysis

Return on equity (ROE) is the ultimate measure of a company’s performance from the

shareholders’ perspective. ROE reveals how much profit a company generates with the invested

money from shareholders. Tableau had negative Shareholders’ Equity in 2011, due to the

Accumulated Deficit being larger than the Additional Paid-in Capital. Therefore, the 2011 ROE

ratio of -1,220% is not necessarily applicable. Positive Shareholders’ Equity existed in 2012 and

the ROE was 14%, which is good considering 2012 considering the ROE level in 2011.

ROE can be broken down into two components: Operating Return and Non-Operating

return. Operating Return is known as the Return on Net Operating Assets (RNOA). RNOA is

calculated by dividing Net Operating Assets (NOA) by Net Operating Profit After Taxes

(NOPAT). RNOA was -36% in 2011 and -18% in 2012. The reason that RNOA was negative for

both 2011 and 2012 is because Tableau had Net Operating Liabilities (NOL) as opposed to Net

Operating Assets (NOA) for both years. Tableau’s NOL was $9.34 million in 2011 and $8.01

million in 2012. NOPAT was $3.38 million in 2011, but $1.46 million in 2012. The decrease in

NOPAT was due to a large increase in the tax expense. Although NOPAT was positive for both

years, the NOL caused the calculation of a negative RNOA. The Non-Operating Return for

Tableau is inapplicable for 2011 due to the negative ROE. However, for 2012, Non-Operating

Return was 33%.

Net Operating Profit Margin (NOPM) reveals how much operating profit a company

earns from each dollar in sales. The NOPM in 2011 was 5.43% in 2011, but 1.14% in 2012. This

decrease was attributed to the decrease in NOPAT in 2012, due mainly to a larger Tax Expense

in 2012.

Masangcay 27

Net Operating Asset Turnover (NOAT) measures the productivity of a company’s Net

Operating Assets by revealing the level of sales a company gains from a dollar invested in Net

Operating Assets. NOAT is negative for both 2011 and 2012, going from -6.68 to -15.93. The

finding is explained by the fact that NOAT is calculated by dividing Revenues over Average

NOA, but Tableau Software had NOL for both 2011 and 2012.

Operating Profitability

Gross Profit Margin measures Gross Profit for each sales dollar. Gross Profit Margin in

2011 was 95.17% in 2011 and 91.89% in 2012. Although Gross Profit decreased slightly in 2012,

Tableau received Gross Profit on over $0.90 of each sales dollar taken in. This ratio is very

strong for Tableau, but makes sense because as a software company, Tableau has minimal

variable costs associated with selling additional copies of the software.

Operating Profit Margin is the ratio of Operating Income of a company to its revenue.

Tableau’s Operating Profit Margin was 6.28% in 2011, but decreased to 3.33% in 2012. The

Operating Profit Margin is low for Tableau, but this was because there was a significant increase

in Operating Expenses. For example, the General and Administrative line item increased by

165% from 2011 and 2012 due to costs for preparation of the IPO.

Net Profit Margin measures how much out of every dollar of sales a company actually

keeps in earnings. Tableau’s Net Profit Margin for 2011 was 5.42% and 1.12% for 2012. While

Tableau had a low Net Profit Margin, this finding seems reasonable. Tableau is still very much in

the startup stages, so it is unexpected to yield a high Net Profit Margin this early. As stated

previously, Tableau also went public only seven months ago and incurred many costs for that,

contributing to the Operating Expenses that hurt Net Profit Margin.

Masangcay 28

Operating Efficiency

Accounts Receivable turnover measures how quickly a company collects on payments

owed to them. Tableau’s Accounts Receivable turnover was 4.67 in 2011 and 4.15 in 2012,

meaning that Tableau’s receivables have been collected around 4.4 times a year on average for

the past two years. Measured in days, Tableau’s Average Collection Period was 78.18 in 2011

and 87.87 in 2012. The Collection Period seems high, but Tableau’s software prices range from

$500 to $2,000. This pricing is a significant amount of money for some consumers and thus,

consumers may take a while to pay off their purchase of the software. Furthermore, Tableau

currently has 12,000 customers. The mass number of customers may have affected Tableau’s

ability to collect Accounts Receivable quickly.

Inventory related ratios, such as Inventory Turnover and Average Inventory Days

Outstanding, are inapplicable to Tableau. Tableau Software does not have any inventory since it

is a software company.

Property, Plant, and Equipment (PPE) Turnover evaluates the productivity of these long-

term assets. Tableau’s PPE Turnover has remained constant for the past two years, averaging

about 12 for 2011 and 2012, which is high. A high PPE turnover is preferred because it signifies

a lower capital investment for a given level of sales. Another analysis of PPE is Average Useful

Life, which refers to the duration for which PPE will be useful to a company. The Average

Useful Life of PPE for Tableau was 2.65 in 2011 and 2.69 in 2012. A longer life is preferred for

the asset, since that would imply lower annual depreciation expenses reported in the income

statement, and thus, higher income each year.

Accounts Payable Turnover measures how quickly a company pays off its suppliers.

Tableau’s Accounts Payable Turnover was 2.09 in 2011 and 2.68 in 2012. A similar measure is

Masangcay 29

Accounts Payable Days Outstanding (APDO), which is the company’s average payable period.

Tableau’s APDO is 174.69 in 2011 but 59.39 in 2012. This large difference is explained by the

fact that the 2011 APDO does not average out the Cost of Goods Sold, since 2010 data was not

available. The 2012 ratio accounts for 2011 data, which helps explain the large difference

between the two ratios. A lower Accounts Payable Turnover is preferable, since management

typically desires to use trade credit for financing for the greatest extent possible. For APDO,

management typically prefers the longer period possible, as long as supplier relations are not hurt.

Risk and Credit Analysis

Coverage analysis is inapplicable to Tableau Software, since Tableau does not have any

debt. Ratios within coverage analysis include Times Interest Earned, EDITDA (Earnings before

Interest, Tax, Depreciation & Amortization). Tableau raised nearly all of its startup funding from

its three founders. Chabot mentioned that the Tableau trio brought modest amounts of money to

the table, but also specifically said that, “Most importantly, we worked for free” (“Swallow,

2012). The three founders made lifestyle adjustments to accommodate for putting money into

Tableau’s funding. For example, Chabot downsized his living space and personal spending, such

as telephone and television bills, drastically. Eventually, Tableau raised $15 million in venture

capital (“Swallow, 2012). This money is stored in the company’s bank account in the event that

unexpected events occur (“Swallow, 2012). To this day, Tableau still has yet to take out a loan to

help advance the company.

Liquidity analysis refers to cash availability. Specifically, it refers how much cash a

company has and is able to generate on short notice. Two measures of liquidity are the current

and quick ratio. The current ratio measures a company’s ability to pay short-term obligations

with short-term assets, such as Cash, Inventory, and Receivables. The current ratio in 2011 was

Masangcay 30

1.61 and 1.47 in 2012. These measures for Tableau are healthy, as a current ratio under 1 can

sometimes suggest that a company is unable to pay off its obligations if they were due

unexpectedly. The quick ratio is a variant of the current ratio, but only focuses on quick assets,

such as those that can be converted to cash within a very short period of time. Tableau’s quick

ratio was 1.54 in 2011 and 1.35 in 2012, both being strong measures since they are over 1.

Solvency analysis considers whether a company can meet its debt obligations. Solvency

analysis includes Liabilities-to-Equity ratio, Total Debt-to-Equity ratio, the Altman-Z score, and

evaluation of cash flows from operating activities versus operating income. The Liabilities-to-

Equity ratio was inapplicable for 2011, since equity was negative, and therefore does not need to

be discussed. In 2012, the Liabilities-to-Equity ratio was 5.73. This ratio signifies how much a

company relies on creditor financing compared with equity financing. A higher ratio points to a

less solvent company. Tableau’s Liabilities-to-Equity ratio is high for a publically traded

company, but I suspect that the ratio will improve in future years, as Tableau’s IPO was in May

2013. The Total Debt-to-Equity ratio is inapplicable for Tableau, since it does not have any debt.

The Altman-Z score was also inapplicable for Tableau Software. With my calculations,

the Altman-Z score for Tableau was over 20 for 2012. The Altman-Z model was originally

created to measure the likelihood of bankruptcy manufacturing firms. For a software company

with tremendous growth like Tableau, the Altman-Z model does not accurately measure the

likelihood of bankruptcy. Furthermore, an Article on Business Insider stated that in 1999, the

Altman-Z model was found to be up to 20% wrong in predicting bankruptcy one year prior to the

event (“The Altman-Z Score”, 2011). Even without the Altman-Z score, I argue that it is very

unlikely that Tableau Software will go bankrupt any time soon. After starting only ten years ago,

Masangcay 31

it has already generated Net Income near $1.5 million for 2012. Also, Tableau has $15 million

stored in its bank account from venture capitalists to accommodate unpredictable events.

Operating Cash Flow and Operating Income was higher in 2012 than 2011. Although

Operating Expenses was much higher in 2012, Gross Profit was significantly higher in 2012 due

to increased revenue. The growth in Gross Profit contributed to an increase in Operating Income

of about $340 thousand. Operating Cash Flow increased over $1 million dollars from 2011 to

2012. This increase is mainly due to an increase in Deferred Revenue, which mainly increased

because of a growth in sales of Maintenance and Services (“Form S-1”, 2013).

Market-Based Ratios

I calculated Tableau’s Price-Earnings ratio, but I do not believe its results are conclusive.

To calculate the Price-Earnings ratio for 2011 and 2012, I used the number of outstanding shares

listed on the Balance Sheet from the S-1 Form and the stock price as of December 11, 2013.

However, Tableau was not publically traded during 2011 and 2012. The Price-Earnings ratio

calculations merited a result of 575.61 for 2011 and 1,609.29 for 2012. I do not believe any

significance can be attributed to these findings due the inconsistent IPO date and years in

question to calculate the ratio. Dividend yield is also inapplicable to Tableau because it has not

paid out any dividends to date.

Masangcay 32

Stock Valuation

Weighted Average Cost of Capital

The Weighted Average Cost of Capital (WACC) is the rate at which a company is

expected to pay its security holders to finance its assets on average. One way to calculate WACC

is through using intrinsic value. This method calculates WACC as:

𝑟𝑤 = 𝑟𝑑  ×  𝐼𝑉𝐷𝑒𝑏𝑡𝐼𝑉𝐹𝑖𝑟𝑚 + 𝑟𝑒  ×  

𝐼𝑉𝐸𝑞𝑢𝑖𝑡𝑦𝐼𝑉𝐹𝑖𝑟𝑚

However, this method of calculation does not work for Tableau Software because it does not

have any debt. I searched other resources, such as www.thatswacc.com and www.valuepro.com,

for an estimate on Tableau Software’s WACC. Both websites did not have information for

Tableau Software, probably due to the fact that Tableau is still a fairly new company.

If I had to estimate Tableau’s WACC, I would look to its fellow competitors’ WACC and

average those numbers. Tableau’s main competitors are Microsoft and SAP, since these

companies produce software such as Excel and Lumira. According to www.thatswacc.com,

Microsoft’s WACC is 8.94% and SAP’s WACC is near 10%. I would assume that Tableau’s

WACC is near this range.

Estimation of Growth Rate for the Horizon Period and Terminal Period

The Discounted Cash Flow Model (DCF) did not work for Tableau Software, so it was

unnecessary to estimate a growth rate for the horizon and terminal period. However, if I had to

choose a growth rate for Tableau, I would choose a growth rate much higher than its competitors.

This assumption is because Tableau is very much in the stage of achieving growth quickly in the

market compared to its competitors. For example, Microsoft’s revenue increased about 5% from

2011 to 2012. Although Microsoft operates at a much larger scale and generates more profit

Masangcay 33

dollar-wise than Tableau, Tableau’s revenue is growing at a much faster rate currently since the

2012 revenue is more than double of 2011. Please refer to Diagram #2 to see graph of this

revenue information. Tableau also has customers in more than 110 countries after only ten years

in operation. With this information in mind, I would say that Tableau’s horizon growth rate

could be near 15%, with the possibility of being even higher than that. As for the terminal

growth rate, this value reflects all future FCFF beyond the forecast horizon. I believe that growth

will eventually slow down, but still continue, for Tableau. Therefore, I think that a 7% terminal

growth rate, about half of the horizon growth rate, is appropriate.

Discounted Cash Flow Model

The DCF model did not work for my company. Majority of this was due to challenges in

calculating the Free Cash Flows to the Firm (FCFF). Typically, FCFF is defined as:

FCFF = NOPAT – Increase in NOA

However, Tableau Software had NOL for the past two years. The negative number for NOL

caused issues in calculating FCFF. For example, it was challenging to estimate the appropriate

rate at which NOL would decrease. Even with an estimate (e.g. assuming that NOL would

decrease by 25% yearly), the ultimate calculations of the stock price per share seemed too

inaccurate to be true. The stock price calculation using this model merited a current stock price

per share of under $5. Because the FCFF model was created for a company with NOA, the DCF

model did not work for Tableau Software.

I searched for an alternative way to define FCFF to see if that contribute to valuating the

stock price. FCFF could also be defined as:

FCFF = Net Cash provided by Operating Activities – Net Cash used in Investing Activities

Masangcay 34

This method also provided a stock price per share that seemed to be too low to be accurate.

However, I could not find a particular reason for this. It could be that the DCF model simply

does not work for my company. The DCF model is geared toward stable companies with steady

growth and works best when there is a high degree of confidence of future cash flows

(Mauboussin, 2006). Tableau is undoubtedly growing at an incredibly fast rate, seen by the

number of employees and revenue increasing twice as much in the past year. Perhaps fast-

growing companies such as Tableau are not targeted with the DCF model, leading to faulty stock

valuation.

I attempted using a market-based valuation method to valuate Tableau’s stock as well.

These methods involved using a multiplier, such as a NOPAT multiplier. However, the market-

based valuations also required calculating the company assumed value and equity assumed value

to calculate the price per share. The company assumed value includes Net Non-Operating

Obligations (NNO) or Net Non-Operating Assets. The equity assumed value is also known as the

market capitalization. However, the market capitalization is defined as outstanding shares

multiplied by the current stock price. With the market capitalization included, the stock price

valuation using the market-based valuation would simply confirm the current stock price per

share instead of deriving a valuation different from the already existing market price. This

method was unsuccessful in assisting me to calculate a stock price different from the market

price.

Masangcay 35

In-depth Analysis of Company Culture

The company values that leaders instill into an organization are the backbone of any

business. Tableau Software markets itself as a “different” kind of company due its unique values

and culture instilled by the three founders. Tableau Software’s values, according to its website,

are passion, use of products, and data driving decisions (“Power to the People”). The first factor

of Tableau Software’s culture is “people who are passionate about the mission”. Tableau’s

mission is very simple – it is to help ordinary people see and understand their data. Having

employees who genuinely care about the mission is essential for Tableau to retain success in

what Tableau is trying to accomplish. This value correlates directly with the second value, “we

use our products”. This value means that employees are not simply just listening to the needs of

customers. Rather, the employees are also experiencing the same needs. Because the employees

are able to see the world from customers’ point of view, they will never stop listening to

customer needs. Tableau Software is then able to fix bugs, make tweaks, and an overall faster

and better way to analyze data. The last of Tableau’s values is “data drives our decisions”. The

employees at Tableau Software are data driven, shown by how the Research & Development

(R&D) team analyzes billions of record logs from products to improve them (“Power to the

People”). The Human Resources (HR) team also studies hiring trends to optimize facilities for

growth and employee comfort.

I had the opportunity to interview Jacob Furman, a 2013 Puget Sound grad who currently

works at Tableau Software as a Software Test Engineer. When I asked how he describes the

values of the company, Furman (2013) said, “Most emphasis is on simplicity, making the

customers happy, working together and honesty, and the fact that we are on a mission to help

people see and understand their data.” In fact, in subset of these values, Tableau employees place

Masangcay 36

importance on truly knowing the software inside and out through using the product internally. I

found it inspiring that an employee of Tableau seconded and reiterated the same values listed on

Tableau’s website. When I asked for an example of how management incorporates the values

into the workplace daily, Jacob said, “The values I described are most easily demonstrated in my

daily interactions with my co-workers, including management” (Furman, 2013). He went on to

explain that everyone is always eager to help fellow employees out. Since people are typically

working toward the same goals, such as the completion of a certain project, people work together

to get tasks done to produce the best product possible. Based on my conversation with Jacob, I

think it is clear that the values that management envisioned and implemented are well received

by the employees. The employees, such as Furman, preach and exhibit the same values,

especially “people who are passionate about the mission”. By having clear company values,

Tableau has established the standards for going about how to achieve its mission.

The three main values of Tableau are the foundation of the organization. I believe that

Tableau’s three values are equally important, but I resonate most with “we use our products”. I

think that when employees use the same products as their consumers, employees inherently

develop more knowledge and insight on what both works and does not work for consumers.

Through getting to know products first-hand, the employees develop a better working

relationship with consumers whenever assistance is needed, since employees have most likely

experienced the same problems too. Furthermore, when employees use the product that they

create, more brand loyalty is generated because the workers are able to directly impact changes

that need to be implemented based on their own experiences.

One of the other values, “people who are passionate about the mission”, is exceptionally

interesting to me as well. This statement blends the company mission – to help people see and

Masangcay 37

understand data – into a value. Dr. Luis Ottley, a leader in the education field, says, “A clear

sense of purpose also opens the door to collaboration – all of a sudden, we’re not talking about

you do, or what I do. We are talking about what we can do together to achieve the same goals”

(McKee, 2010). In a technology driven company like Tableau, collaboration is exceptionally

important to innovate new, eye-catching, easy-to-use software for data visualization. In my

interview with Furman, he felt that the company values were most easily demonstrated by

peoples’ eagerness to work with him. Through collaboration, just as Furman and his team do

daily, Tableau is able to better achieve their mission statement daily. By incorporating the

company mission with company values, Tableau’s employees are constantly reminded of the

purpose and goal of their work.

Masangcay 38

Summary and Conclusion

Potential as a Future Employer

I recommend Tableau Software as a future employer, especially for Puget Sound grads.

My recommendation is mostly based off of my attraction to Tableau Software’s culture, its

mission, and the interview I conducted with Jacob Furman.

Two of my most important values that I search for in a potential employer are work-life

balance and independence. I would also add that many of my colleagues have expressed interest

in these values too, especially work-life balance. When asked Furman what he likes best about

Tableau, he said, “I enjoy the flexibility I am given. I have no set hours, just work to do”

(Furman, 2013). He went on to explain that he has the ability to telecommute (work from home)

and flex his hours. Flexing is working other hours than the standard 8-5pm hours. For example,

if Furman prefers to leave every Friday afternoon early, he is able to do that as long as he can get

his work done. Furman (2013) said, “Things are pretty hands off, which can make things

challenging, but I largely think that is part of what makes our culture so refreshing.” It seems that

Tableau allows (and even encourages) employees to be independent thinkers while maintaining a

healthy work-life balance with the hands off culture on work hours. Each employee has a team to

work with also, so even with the independency that is granted, teamwork is also a huge part of

the work. The mix of independence, teamwork, and work-life balance seems like it could be a

great fit for many Puget Sound graduates.

I also recommend working for Tableau simply due to the stability of its work. Michael

Palmer, a marketing commentator, said, “Data is just like crude. It’s valuable, but if unrefined it

cannot be really used. It has to be changed into gas, plastic, chemicals, etc. to create a valuable

entity that drives profitable activity; so must data be broken down, analyzed for it to have value”

Masangcay 39

(Rotella, 2012). Just as this quote pointed to, data has often been referred to as the oil of the 21st

century. Digital information is expected to grow exponentially to 40 trillion gigabytes in 2020

from 800 billion gigabytes in 2010 (Dimri, 2013). Tableau’s line of work is valuable given the

technology driven world that we all live in today. Even though Tableau is still a fairly new

company, it serves a purpose and its line of work will only become more valuable as more data is

created. Positions with Tableau are stable, since Tableau is currently the leader in data

visualization and the need for data visualization has only increased since Tableau’s inception.

There are also other reasons I would recommend Tableau as a future employer. Tableau

offers nearly all benefits that job hunters are seeking, including 100% paid medical and vision

coverage (85% for families), disability coverage, public transit reimbursement, relocation

assistance, dental coverage, flexible spending accounts, life insurance, and 401(K) plans

(“Careers”). Furthermore, new employees start out with 15 days of paid vacation (“Careers”).

For Puget Sound grads especially, I would recommend Tableau because also because it is

headquartered in Seattle, and often graduates try to stay in the area. For those who do not want to

remain in the Washington area, Tableau has locations in the Bay Area, Texas, London, Dublin,

Tokyo, Singapore, and Sydney (“Careers”). Lastly, there is lots of room for both career growth

and personal development. Furman explained that Tableau has different courses that all

employees are able to take, ranging from learning the product better to speakers coming to the

company for lectures on data visualization. Overall, there are many reasons I would recommend

Tableau Software as a potential employer and I am interested myself in pursuing a job with the

company based on my work with this project.

Masangcay 40

Credit Assessment

The credit assessment recommendation must be from the viewpoint of the banks. If banks

were looking at whether to extend credit to Tableau I would recommend that Tableau is credit

worthy.

I recommend that Tableau is credit worthy due to its growth in revenue and positive Net

Income. Tableau’s revenue has been increasing rapidly in the past couple years and is on track to

continue that trend for 2013. Using the three months ended September 30, 2013 data from the

recent Quarterly Filing, it was revealed that Tableau could potentially earn $244 million in

revenue for 2013. As for Net Income, Tableau has been able to generate over $1 million in Net

Income for the past three years. Tableau posted its highest Net Income to date in 2011 at $3.3

million. This was an increase from the $2.7 million in 2010. While the 2012 Net Income of $1.4

million was lower than the prior years, this decrease mostly due to the increase in Operating

Costs for 2012. For example, Tableau increased spending in General & Administrative in

preparation for the IPO. Tableau’s Revenue and Net Income show evidence that it is in a

financially stable position, worthy of credit from banking institutions.

Another reason I recommend Tableau as credit worthy is because of its debt-free history.

Tableau is completely debt free and has been since its inception. The three founders contributed

their own personal funds to start the company and adjusted their lifestyle for a couple of years to

accommodate for the money that they contributed personally to Tableau’s growth. Stolte,

Hanrahan, and Chabot were also very careful in what Tableau spent its money on too. In fact, the

founders hosted one of the first Tableau holiday parties in someone’s living room, instead of a

swanky and expensive venue. The main point is that the founders have always been mindful of

spending smart and remaining resourceful with Tableau’s money. Eventually, Tableau raised $15

Masangcay 41

million in venture capital. Stolte, Hanrahan, and Chabot’s goal was to “raise customers before

raising capital” (Swallow, 2012). The founders were careful of raising the venture capital too

early because they wanted to raise money on more attractive terms and maintain control of the

company (Swallow, 2012). The $15 million is specifically used as a cushion in the event that

things do not go as planned. Because Tableau’s financial state has been in such a strong, debt-

free position since 2003, I believe that Tableau is capable of paying back any credit that is

extended to them. Therefore, I recommend Tableau as credit worthy.

Common Equity Investment Potential

Although I was unable to complete a stock valuation for Tableau, I recommend investing

in Tableau’s equity. This recommendation is based off research I have done online that

reinforces Tableau’s strong presence and success in the market.

One reason I recommend investing in Tableau is because of its impressive customer list.

Tableau has over 12,000 customer accounts and the number of consumers is growing daily

(“Customers”). Tableau sells to both individual consumers and businesses. Among the

businesses that utilize Tableau include big names such as Pfizer, Wells Fargo, Fannie Mae,

Goldman Sachs, Bloomberg, Amazon, and Google (“Customers”). Universities have started to

buy Tableau Software licenses too, such as the University of Washington, Cornell University,

Stanford University, Duke University, and Carnegie Mellon University (“Customers”). However,

Tableau’s consumer list does not stop there – even the government has started to use Tableau

Software products. Some government areas that are currently using Tableau Software include

Homeland Security, the Internal Revenue Services (IRS), Government of Canada, and the United

States Army and Air Force (“Customers”). Considering that universities, businesses, and

especially the government on board with Tableau’s products, it looks like Tableau’s software is

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definitely fulfilling the need better visualize data for quite a number of audiences. This consumer

list will most likely only grow in the near future.

Another reason I recommend investing in Tableau is because I am confident that Tableau

will be around for a considerable amount of time. When Chris Smith, a global entrepreneur,

came to speak to the Business 416 class, he urged us to buy stocks only in companies we know

will continue serving a need in the future. In other words, he recommended us to buy stocks for

companies that provide a good or service that will continue to be demanded. In going back to the

data as the oil of 21st century metaphor, I think that there is no doubt that our society relies on

data and will continue relying on data. Especially with the rapid growth in data to a predicted 40

trillion gigabytes in 2020, data visualization software will be needed to make data visualization

fun, easy, and convenient.

The last reason I recommend investing in Tableau Software is because of its success in

the stock market since the IPO in May. The estimated IPO price per share was between $28 and

$30. Tableau Software opened with a price of $47 per share and closed at over $50.57 the same

day. Tableau hit a high of $74.75 on September 10, 2013. It is now currently trading at $66.78 as

of December 6, 2013. Although there was a low of $48.50 in early June, the growth of Tableau’s

stock is reasonable and there have not been any major areas of concern since the IPO. The graph

below illustrates the closing stock prices from the IPO date through December 6, 2013.

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Diagram 7: Tableau’s Stock History

Summary and Conclusions

Overall, Tableau Software was a difficult company to analyze at times, due to the recent

IPO and limited data available. For example, I was unable to complete a stock valuation for the

company, which made my investment recommendation challenging. With the difficulties I faced,

such as the stock valuation, I utilized alternatives methods of research to complete the ultimate

objective of this project. Students completing the Business 416 project were expected to give

recommendations regarding whether or not to invest in the firm’s equity, to extend credit to the

firm, or to recommend the company as an employer for graduates from the University of Puget

Sound. I recommended that it would be wise to invest in Tableau’s stock and extend credit to

Tableau, but also that Puget Sound graduates should consider Tableau as a prospective employer.

This project has been extremely beneficial in increasing my knowledge about Tableau

Software. I had essentially only heard of Tableau Software prior to this project, but with the

information I have now, I am interested in pursuing a career with the company. I also enjoy

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using the software for my schoolwork and would recommend it to anyone. I believe that the

product is valuable for both work and personal use and am excited to see Tableau’s future

growth.

Total word count: 11,416

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References Buxmann, P., Diefenbach, H., & Hess, T. (2013). Economic Principles in the Software Industry. doi: 10.1007/978-3-642-31510-7_2. Columbus, L. (2013, May 12). 2013 ERP Market Share Update: SAP Solidifies Market Leadership. Forbes. Retrieved from http://www.forbes.com/sites/louiscolumbus/2013/05/12/2013-erp-market- share-update- sap-solidifies-market-leadership/ Coffey, B. Industry Surveys – Computers: Software. (2013, August). Retrieved December 1, 2013 from Standard & Poor’s. Dimri, N. (2013, May 17). Tableau Software skyrockets more than 50 percent higher after IPO. MercuryNews.com. Retrieved November 22, 2013, from http://www.mercurynews.com/ci_23266537/tableau-software-skyrockets-more-than-50- percent-higher Form S-1. (2013, May 15). Tableau Software, Inc. Retrieved October 13, 2013 from Tableau Software, Investor Relations. Furman, J. Personal communication. (2013, December 3). Hanrahan, P., Stolte, C. & Mackinglay, J. (2007, January). Visual Analysis for Everyone. Retrieved from Tableau Software. McKee, A. (2010). Management: A Focus on Leaders. Upper Saddle River, NJ: Prentice Hall. Mauboussin, M. (2013, March 16). Common Errors in DCF Models. Maubossin on Strategy. Retrieved November 25, 2013, from http://www3.nd.edu/~scorwin/fin70610/Com Rotella, P. (2012, April 2). Is Data The New Oil?. Forbes. Retrieved December 12, 2013, from http://www.forbes.com/sites/perryrotella/2012/04/02/is-data-the-new-oil/ SAP. SAP Lumira. Retrieved from

http://www.saphana.com/community/learn/solutions/sap-lumira/sap-lumira-desktop

Swallow, E. (2012, December 27). How One Startup Grew a $100M Business Without Spending Venture Capital. Forbes. Retrieved December 1, 2013, from http://www.forbes.com/sites/ericaswallow/2012/12/27/bootstrapping-startup-venture- capital/ Tableau Software Customers. Retrieved from http://www.tableausoftware.com/about/customers Tableau Software Careers. Are you Tableau? Retrieved from http://careers.tableausoftware.com

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Tableau Software Leadership. Retrieved from http://www.tableausoftware.com/about/leadership Tableau Software Patents, Copyright & Trademarks. Retrieved from http://www.tableausoftware.com/ip Tableau Software Philosophy. Power to the People. Retrieved from http://mission.tableausoftware.com/#/power-to-the-people/ Tableau Software Story. Founding Tableau. Retrieved from http://mission.tableausoftware.com/#/founding-tableau/ The Altman Z-Score: Is It Possible to Predict Corporate Bankruptcy Using a Formula? (2011, April 13). Business Insider. Retrieved December 12, 2013, from http://www.businessinsider.com/the-altman-z-score-is-it-possible-to-predict-corporate- bankruptcy-using-a-formula-2011-4

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Appendix Appendix #1: Operating Lease Commitments

Appendices #2-12 are not in Word Document format and will be included behind this page for the printout version. For the computer version, Appendices #2-10 will be included in a separate Excel file. These appendices include:

• Appendix #2: Balance Sheet • Appendix #3: Income Statement • Appendix #4: Statement of Stockholders’ Equity • Appendix #5: Statement of Cash Flows • Appendix #6: Tax Footnote • Appendix #7: Common Size Balance Sheet • Appendix #8: Common Size Income Statement • Appendix #9: Horizontal Analysis Balance Sheet • Appendix #10: Horizontal Analysis Income Statement • Appendix #11: Profitability Analysis • Appendix #12: Ratios