Tableau Might Prove Canary In Coal Mine For Broad Software Sector
Well, which canary is it? After Big Data analytics software maker Tableau Software ( DATA ) disappointed investors with Q1 and 2016 guidance well below Wall Street expectations — sending its stock crashing 49.5% Friday to an all-time low — Summit Research analyst Srini Nandury questioned whether Tableau “will prove to be the proverbial canary in the coal mine.” Nandury was referring to Tableau and prospects for its growth. But later Friday, in a research report, Robert W. Baird analyst Steven Ashley posed the identical question: “We wonder if Tableau will prove to be the proverbial canary in the coal mine.” Ashley’s canary was much bigger. “With among the smallest deal sizes and shortest sales cycles in enterprise software, Tableau theoretically would be the first to see any downturn in new pipeline business due to a macro weakness,” Ashley wrote, questioning whether other enterprise software vendors might follow. Investors got the point. Tableau rivals Splunk ( SPLK ) and Qlik Technologies ( QLIK ) fell 23% and 15%, respectively, and little Hortonworks ( HDP ) — which may have been Big Data’s first canary with a 37% gap down Jan. 19 after a poor earnings report — fell 17%, also hitting an all-time low. Hortonworks The First Canary? Closing Friday at 8.48, Hortonworks is not only below its December 2014 initial public offering price of 16, but is also below the 9.50-a-share price Goldman Sachs set Tuesday for an 8.425 million-share secondary offering. Hortonworks’ Jan. 19 dive came after it filed with the SEC to raise $100 million in the secondary offering, coming after the worst opening two weeks of any year in the market’s history. On Tuesday, Hortonworks said in its new SEC filing that it had raised only $77.19 million, before expenses. Evercore ISI analyst Bill Whyman told IBD on Friday, however, that he stands by his research issued Jan. 26, in which he acknowledged tech companies face continuing “weak” demand, but not so weak that stocks should be “falling off a cliff” like they have so far this year. “The harder question is: Are stocks anticipating that demand will fall off a cliff six months from now?” Whyman said. “The evidence to date does not make this our base case.” He expects 6% global tech revenue growth for 2016 vs. 2% in 2015, and offered a mixed bag when looking at sectors. He advises overweighting portfolios with software and Internet stocks, underweighting communications equipment and computing, and market-weighting (neither buying nor selling) semiconductor stocks. “We forecast ‘not-pretty-but-we’ll-take-it’ overall,” he said. Late Friday, however, his Evercore ISI colleague Kirk Materne, sang a tougher mine-canary tune, “as software officially enters the pain cave.” “If you wanted a cathartic event to wipe out any remaining optimism in the software space, (Tableau’s) earnings report was it,” Materne wrote in a research note. “Ironically, the idea that a license-based, visualization tool vendor (Tableau) that is facing growing pains would cause a 10% pullback in Adobe ( ADBE ) or 14% pullback in CRM ( Salesforce.com ( CRM )) would seem like a stretch, but welcome to the new reality. “While most of the major ‘blow-ups’ year-to-date in software have been more company specific (at least in my view) vs. a dramatic change in the fundamental backdrop, the reality is no one cares, and the broader de-risking in the sector is unlikely to end until we see a strong quarter from one of the higher-quality growth names like CRM or Palo Alto Networks ( PANW ) (and the stock actually goes up) and/or until some of the smaller names throw in the towel and M&A picks up.” Palo Alto Networks stock fell 12% Friday, part of the general downturn. Database leader Oracle ( ORCL ), which is still trying to accelerate its cloud business, fell 1.9% Friday, in line with Friday’s broader market decline. IBD’s entire Computer Software-Database industry group fell 15%. Other big names in the enterprise software market tumbling Friday included SAP ( SAP ) (down 3.6%), Salesforce.com (13%), Workday ( WDAY ) (16%) and Manhattan Associates ( MANH ) (9%). IBD’s Computer Software-Enterprise group fell 8% Friday to a 2-1/2-year low. Qlik, CyberArk Software ( CYBR ), FireEye ( FEYE ) and Hortonworks are all scheduled to report earnings in the coming week, with the pressure on.