Saturday, August 16, 2014

Business Intelligence / Qlik's New Software Offers A Unique Opportunity / (A look @ Qlik Technologies Inc. NASDAQ:QLIK as an investment)

David HernandezDH Analytics for Seeking Alpha writes: 


  • Qlik has been growing fast but profitability has been an issue. As the company continues to grow, management will need to start addressing the company's profitability issues.
  • QlikView helped establish the company's stellar reputation but the company needs a different solution.
  • The company's new software Qlik Sense keeps the good aspects of QlikView and improves upon its weaknesses.
  • Qlik Sense will help the company take advantage of the shift in Business Intelligence spending.
  • Qlik Sense should help create a competitive advantage over both business and IT-centric competitors.
Qlik Technologies Inc. (NASDAQ:QLIK) is a developer of Business Intelligence software. Qlik's revenue has grown rapidly over the last several years. Revenue has grown at a CAGR of 31.5% or 199.0% from 2009-2013. Gross profit margin has remained high only slipping slightly from 88.9% in 2009 to 86.9% in 2013. The company's strong performance has continued into 2014. Management reported second quarter results, which were better than expected and issued strong third quarter guidance. Qlik reported revenue of $131.6 million, up 21% y/y, which easily beat estimates of $125.3 million. The company's third quarter revenue guidance is $122 to $126 million versus the average consensus estimate of $123.3 million. Although revenue growth has been strong, the company's profitability has declined rapidly over the years.
Since 2009, gross profit margin has been steady but operating margin has declined from 8.4% to 0.7% in 2013. Net income margin has suffered a similar decline, falling from 4.4% in 2009 to -2.1% in 2013. This hasn't improved in 2014 with both Q1 and Q2 producing negative operating margin. The company's declining profitability has been driven by a rapid increase in general and administrative expenses and research and development expenses. General and administrative costs have risen at a CAGR of 41.8% since 2009. Research and development costs have grown at a CAGR of 61.2% during the same period. The growth in research and development is a necessary expense, which should lead to more innovative products. Yet, research and development's growth needs to slow down. In 2014, management appears to have done just that by slowing down research and development to an annual growth rate of 20.5%. Management still needs to do a better job of controlling general and administrative expenses which are on pace to increase 43.5%.
Operating expenses have grown rapidly because management has mainly been focused on growing revenue. The company's declining profitability will need to be addressed. Yet as long as revenue continues to increase rapidly, management should be able to increase profitability by simply slowing down operating expense growth. Qlik's rapid revenue growth should continue due to the introduction of new software, which improves upon the current award-winning software.

QlikView Has Helped Establish A Top Quality Brand

Qlik has created a great reputation within the Business Intelligence community. The company was recently honored by Frost & Sullivan forleadership in Big Data analytics. Qlik's stellar reputation was built because of its software QlikView. QlikView offers customers a powerful and easy customized data analysis tool. QlikView isn't the only Business Intelligence software offering a powerful and customizable experience. Yet, the company has been able to thrive in the highly competitive Business Intelligence industry. Qlik's success can be attributed to the software's top quality and developer friendliness. Gartner writes QlikView has above average ratings "... for dashboards, interactive visualization, search-based data discovery (rated No. 1), geospatial intelligence, business user data mashup, collaboration (a score near the top), big data support (also near the top) and mobile BI."
Additionally, Gartner reports the software is considered easy to use by developers and normal users. The software is highly rated for its ability to handle complex data analysis. Qlik has created a software solution, which can quickly and easily handle any data analysis task. However, if QlikView's software is so highly rated, why has management been developing an entirely new platform?

Still Too Technical For Business Users

Although QlikView was rated easy to use by both developers and business users. Gartner explains the software was considered easier to use compared to "incumbent IT-centric vendors." The company's ease of use is considered subpar compared to more business centric software solutions. Gartner writes "... in terms of visual-based interactive exploration and analysis capabilities, user experience, and the time it takes for business users to gain proficiency in authoring, the current QlikView 11.x release is considered more limited than offerings from other stand-alone data discovery vendors." QlikView is a top quality product but is still too technical for normal business users to fully exploit. QlikView's subpar performance compared to other data discovery vendors needs to be fixed.
Historically, the IT department has been the main consumer of Business Intelligence software. They help organize and analyze data, create reports and distribute information throughout the organization. Yet, the Business Intelligence industry is going through a dramatic shift in spending and usage. Gartner reports "...half of BI and analytics spending will be business driven...half of new license spend will be driven by data discovery." Non-IT personnel are going to shape data discovery and analysis tools for the future. They will need to quickly and easily produce meaningful insight from large datasets. This will require more intuitive and simplistic tools without sacrificing data analysis capabilities. Fortunately, management recognized this trend several years ago and has started to release products, which will fill this need.

Future Of Business Intelligence

QlikView doesn't fully suit the needs of future Business Intelligence consumers. Management needs to find a better solution. Especially since there are several companies offering better software solutions such as Tableau Software Inc. (NYSE:DATA). Tableau has quickly established itself as the premium data discovery solutions provider. The software is cheap, simple to use, and still powerful. Tableau has been successful because of the patented querying language called VizQL. VizQl excels at making data discovery more visual and intuitive. This is an area where QlikView falls significantly short. To address QlikView's shortcomings, management started the Qlik.Next project two years ago. The two-year-old research project has started to produce results with its first release called Qlik Sense. How is Qlik Sense different than QlikView?
Qlik Sense is based on the company's new Natural Analytics system. Like Tableau's VizQL, Natural Analytics allows for a more intuitive and visually based way to interact with data. Natural Analytics will reduce the complexity of data analysis and improve the ability of business users to quickly gain insight. This is because Natural Analytics builds on QlikView's strengths and greatly reduces its weaknesses. Gartner writes, "Natural Analytics builds on the company's associative search capability and incorporates enhanced comparisons, collaboration, workflow, sharing and data dialogs, as well as enhanced insights from unique visualization techniques that Qlik acquired from NComVA in June 2013."
Qlik Sense improves on QlikView but also gives the company a unique opportunity to fill a gap in the Business Intelligence industry. Gartner states "Qlik plans for QlikView.Next to deliver the combination of business user and IT capabilities that is currently lacking in the market." QlikView is one of the best IT-centric software solutions. With Qlik Sense, the company can offer customers the best of both worlds. This unique software solution will give the company a competitive advantage over both business and IT focused competitors.

Unique Opportunity

Qlik is a top quality Business Intelligence software provider. The company has been able to successfully compete in the highly competitive Business Intelligence industry with its software QlikView. QlikView is a high quality and powerful software solution. However, QlikView does have several major drawbacks. The software is very powerful but lacks the simplicity of other software solutions. Simplicity is important because of the shift in Business Intelligence spending. Business personnel will be the main drivers of spending on data analysis and discovery tools. Management had anticipated this shift and started a research project over two years ago. The research project has a software solution called Qlik Sense.
Qlik Sense improves upon QlikView by making the software simple to use. Qlik Sense has been developed to give consumers ease of use while still be a great development platform. With Qlik Sense, the company should be able to satisfy IT and business personnel with one product. This should give the company a competitive advantage over both business and IT centric competitors. Qlik is positioned well to grow rapidly over the next several years. Although management will need to address the company's profitability issues it should only have to make minor adjustments to their expense's growth rates. These minor adjustments shouldn't impact the company's future revenue growth and will help improve profitability.


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