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Analyzing Tableau Software’s Key Cost Drivers

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Determining the key components of operating cost

In order to remain competitive, Tableau Software (DATA) makes significant investments in research and development (or R&D) on a regular basis. As a result, the company continues to launch new products. The company’s goal to expand its international presence also accelerated its sales and marketing costs. On a combined basis, these categories constitute nearly 90.0% of the company’s total operating expenses.

In the last five quarters, operating expenses for Tableau Software grew at a CAGR (compound annual growth rate) of 2.3%. Likewise, its R&D and sales and marketing expenses in the same period increased at CAGRs of 1.6% and 2.7%, respectively.

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In the chart above, we can see an increasing trend for total operating expenses in the last five quarters for Tableau Software. In 4Q17, its total operating costs came in at $263.0 million, an increase of 2.3% YoY (year-over-year). In fiscal 2017, its total operating costs increased 10.0% YoY to $954.0 million.

Other factors affecting DATA’s margins

Tableau Software is in the process of increasing its workforce. Tableau Software exited fiscal 2017 with a total workforce of 3,489 versus 3,223 in fiscal 2016, which pressured its margins further. The company’s ongoing transition from an upfront pricing model to a subscription-based pricing model has affected its top-line growth and its margins.

However, Tableau Software benefits from its increased client portfolio. Large companies such as ExxonMobil (XOM) and Wells Fargo (WFC) are already in its customer portfolio. In 4Q17, the company struck several large deals, which may help improve its margin in fiscal 2019.

Tableau Software is aiming for a breakeven margin in fiscal 2018. However, the company believes that the increase in employee strength could hurt its margin in fiscal 2018.

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