Tableau Will Surely Set the Tone

 | May 06, 2014 | 7:39 AM EDT  | Comments
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When I say, "Supply kills," and you aren't exactly sure what I mean, I should add, "Go Google 'supply of Tableau Software (DATA).'" Here's a company that has done everything right for the growth momentum cohort, not unlike its compadres in crime. The stock had rallied tremendously this year, running from $67 to $102 and peaking in the last week of February, same as all of the other highfliers.

Then it crashed back to Earth, or at least to $55, before the company reported Tuesday night. Once again, as it had always done since coming public a year ago, Tableau delivered the superior growth for which it's been known. Sales grew at more than 80%, and the company struck many huge deals.

Now, in the premarket, it is trading up. Can this move be trusted? Let's look at the history.

The last time Tableau reported a similarly amazing quarter, back on Feb. 4, the stock soared 13% -- from $79 to $89 -- in one session. It kept climbing, too, peaking at $102 near the end of February like just about every other stock in this sector and its close relations. That means cloud computing, software-as-a-service, big data and network security.

So, then, what went wrong? Why didn't it continue? I think that, because the stock got very expensive vs. historical parameters, there was a ton of insider selling after the quarter. Then the company dropped a 4-million-share follow-on offering, pricing the darned thing at $89.35. Yes, supply hit the tape from everywhere, and this just plain overwhelmed demand.

It's really been bombs-away ever since. Tableau's sickening slide has looked like all the others: relentless selling, perhaps spurred by margin calls, then a little lift -- followed by another barrage of selling.

This one barely participated in the post-Yelp (YELP) earnings rally, in part because its cohort of business-intelligence software has been soft of late, even as that's not been the case with Tableau specifically. But Tableau's giant offering really laid to waste all who have tried to catch the bottom here. That huge swath of stock simply couldn't find a home, and the stock's been a hot potato ever since. It didn't help, for certain, that the offering came during the week of March 20, the heaviest week for initial public offerings in seven years.

I have often thought of that offering as a price-discovery event. Look, we knew the stock shouldn't have run all the way up to $102 after that last quarter -- but what was the real price? Where do large sellers and buyers meet? What's it really worth?

Four million shares were priced well off the high, and you tend to think that this is price -- or, if anything, you'd think it's below the real price and that the stock will bounce back up. Nope, the stock traded down to $75 four sessions after that $89-and-change pricing. Straight line.

A few weeks later, it would all be gone and then some: The stock closed Monday off 15% for the year.

Until that dastardly secondary, many of the holders didn't even seem to know what Tableau did other than business-analytics software. They may have known that it is a simple software platform that's used to help you figure out business trends. (It does look very easy to use if you view the demos on the company's website.)

However, until the giant offering, I think many of the people in this stock just called it, "big-data pure play" or "red-hot 80% grower, fastest in the land." They left it at that, and held on for dear life from bottom to top and back again.

It was only after the swift denouement did people realize that they owned the stock of still one more name that didn't want to show big-time profitability because the stock was running too fast to get all the deals the company thought shareholders wanted it to get. Yes, it was one more company for which the opportunity was too great to make a profit -- the exact attitude that stood for higher and higher stock prices until the world changed in the last week of February.

Now, though, we have another event that could be a price-discovery moment on the other end because of the huge decline; the post-Yelp rally, no matter how ephemeral; and the reversal of these kinds of stocks from yesterday: the spectacular quarter Tableau reported last night.

Five months ago, this quarterly report would have gapped this thing up 15% -- off of a lower base than what we saw the last quarter. There would have been a ton of high-fives all around on that call last night three months ago. So many client wins! So many big deals! One hundred twenty deals worth more than $100,000 -- everyone from the Brooklyn Public Library and the Cleveland Indians to Starwood Hotels & Resorts (HOT) and TripAdvisor (TRIP)! So much opportunity!

But the market has changed. The "Congratulations, gentlemen" tone was gone last night. It was a much more sober exercise. Now, understand: The analysts don't really want the environment to change. They loved making those low $100 share-price targets when Tableau stock was in the $70s after the last blow-out, and they have been reluctant to lower those targets. They might have to do that today.

These analysts are kind of collectively embarrassed by what has happened over the last few months, and you can tell from their inquiries that they are fighting this new pro-profit world. In fact, one of their number asked a really sheepish question on last night's call, using the dreaded "P" word, for profit. Management quickly dismissed it out of hand, saying, "We're not so much focused on the road to profitability," although the company's been able to show a small profit in the past.

I found the interchange an awkward moment of reality that no one really wanted to hear. Maybe everyone's hoping we will go right back to where we had been before the big decline. Somehow I don't think so.

Now, when we got really good sales numbers from Yelp last week, Tableau saw a nice 5-point squeeze up after an initial swoon in late-night trading. But then much, though not all, of that move was repealed.

Still, though, yesterday, as I mentioned, these kinds of stocks had a good tone after the mid-morning turnaround, and perhaps Tableau will continue it. We know the stock went up initially in after-hours trading, moving about a buck and change. Then, as the conference call went on, we heard more and more encouraging things, and the stock continued to ramp. In the last bit of after-hours trading, the stock was up about 3 and change. That's not a plus-13% move in the aftermarket. But it's better than a sharp stick in the eye.

We've seen the cookie-cutter results of so many of these analytics and software-as-a-service companies -- think the bedraggled Splunk (SPLK), a partner of Tableau and the crushed Workday (WDAY) -- all of which have plus 60% revenue growth. Given this, a next-day rally for Tableau should provide for terrific pin action across the spectrum of these kinds of stocks.

But you must recognize that there are still weak shareholders all over the place with this stock. Judging from the chart, there had been bad hands who had wanted to sell it on any lift. It will be amazingly telling if this report can staunch the selling or attract new people when the stock is still really expensive on pretty much every metric.

Suffice it to say that, if you are trading in this sector, Tableau Software is the only name you need to have on your screen this morning. It gave you a textbook dive with failed price discovery at $89. Will this pivot be any different, perhaps this time in rally mode?

We'll see shortly, and it will set the tone, for certain, in the long session ahead.

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