Tableau Software: Financial Statement Analysis

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Thesis project completed in December 2013 on Tableau Software focusing on financial statement analysis.



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


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.

Masangcay 1 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

Masangcay 2 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.

Masangcay 3 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

Masangcay 4 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

Masangcay 5 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.

Masangcay 6 Firm Leadership

Tableau Software co-founders: Left to right: Chris Stolte, Pat Hanrahan, and Christian Chabot (“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 cofounded (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

Masangcay 7 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,

Masangcay 8 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

Note that Tableau Software currently does not have any debt.

Masangcay 9 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

Masangcay 10 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

Masangcay 11 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.

Masangcay 12 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

Masangcay 13 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 • Slows down with larger data cities sets • Can easily transfer work from a • Risk and uncertainty since computer to a tablet Tableau is new 3 Excel • Dominant in data storage • Lacks functionality in tablets and mobile phones

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.

Masangcay 14 • Lumira • • Household name; very popular and well known compared to competitors More powerful predictive analytics capabilities Files are saved to the cloud (recovering work is easier) • • • Less visualization features and options available 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

Refer to the “Analysis of Financial Statements” for more information.

Masangcay 15 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

Masangcay 16 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

Masangcay 17 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

Masangcay 18 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.

Masangcay 19 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 S1 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,

Masangcay 20 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

Masangcay 21 & 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 longterm 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-toEquity 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: !! ! !!!! ! !"!"#$ !"!"#$%& ! !!!! ! !"!"#$ !"!"#$

However, this method of calculation does not work for Tableau Software because it does not have any debt. I searched other resources, such as and, 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, 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 fastgrowing 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 marketbased 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, debtfree 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

Masangcay 42 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.

Masangcay 43 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

Masangcay 44 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

Masangcay 45 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 share-updatesap-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. Retrieved November 22, 2013, from 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 Rotella, P. (2012, April 2). Is Data The New Oil?. Forbes. Retrieved December 12, 2013, from SAP. SAP Lumira. Retrieved from Swallow, E. (2012, December 27). How One Startup Grew a $100M Business Without Spending Venture Capital. Forbes. Retrieved December 1, 2013, from Tableau Software Customers. Retrieved from Tableau Software Careers. Are you Tableau? Retrieved from

Masangcay 46 Tableau Software Leadership. Retrieved from Tableau Software Patents, Copyright & Trademarks. Retrieved from Tableau Software Philosophy. Power to the People. Retrieved from Tableau Software Story. Founding Tableau. Retrieved from The Altman Z-Score: Is It Possible to Predict Corporate Bankruptcy Using a Formula? (2011, April 13). Business Insider. Retrieved December 12, 2013, from

Masangcay 47 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

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