The data specialist beat the estimates, but gave disappointing expectations. Are stocks cheap enough to buy now?
Shares of hybrid cloud data manager Teradata (TDC -14.71%) fell 13.3% as of 1:25 PM ET on Tuesday.
The software company fell after its third-quarter earnings report. While it beat analyst expectations for both revenue and adjusted earnings per share (EPS), management issued guidance that was somewhat conservative on the growth of its cloud business.
Migration to the cloud leads to noisy results
For the third quarter, Teradata posted revenue of $440 million, essentially flat from $438 million in the prior year quarter. Adjusted (non-GAAP) earnings per share came in at $0.69, beating analyst expectations of $0.53.
Notably, Teradata is migrating from an on-premises company with perpetual licenses to a company with recurring cloud subscriptions. When a company does that, it typically sees flat revenue or even a decline as larger upfront licenses that need to be used for years are replaced with recurring subscriptions that are billed over time.
That’s what’s going on with Teradata. While revenue remained flat, annual recurring revenue (ARR) from public cloud increased 26%. That’s more in line with what you’d expect from an enterprise software-as-a-service company.
But therein lies the problem. Management expects public cloud ARR to slow to 18% to 22% growth in the fourth quarter. During the call, management noted, “Customers plan to migrate workloads to the cloud in a more phased process.” In other words, the shift from on-premises to the cloud is slowing, with longer cycles. Total ARR guidance for the year, including cloud and on-premises, remained unchanged, down 2% to 4%.
Teradata doesn’t look exciting in the short term
Shares look a bit cheap after today’s plunge, at around 12.2 times forecast 2024 adjusted earnings per share. But with growth proving difficult to deliver, it suggests a somewhat competitive environment.
Hybrid cloud data management should be a growth area. So Teradata remains to be watched, but investors may want to wait for more clarity in the coming quarters before buying.
