Teradata's (NYSE:TDC) Q4 Earnings Results: Revenue In Line With Expectations But Stock Drops 11.5%

Full Report / February 12, 2024

Data and analytics software provider Teradata (NYSE:TDC) reported results in line with analysts' expectations in Q4 FY2023, with revenue up 1.1% year on year to $457 million. It made a non-GAAP profit of $0.56 per share, improving from its profit of $0.35 per share in the same quarter last year.

Teradata (TDC) Q4 FY2023 Highlights:

  • Revenue: $457 million vs analyst estimates of $455.7 million (small beat)
  • ARR: $1.570 billion vs analyst estimates of $1.577 billion (small miss)
  • Guidance for 2024 ARR growth of "4% to 8% year-over-year, in constant currency" (6% midpoint missed vs. expectations of roughly 8% growth)
  • Guidance for 2024 revenue growth of "0% to 2% year-over-year, in constant currency" (1% midpoint missed vs. expectations of roughly 4% growth)
  • EPS (non-GAAP): $0.56 vs analyst estimates of $0.51 (9% beat)
  • Guidance for 2024 EPS (non-GAAP) of $2.23 at the midpoint (6% miss vs expectations of $2.38)
  • Free Cash Flow of $168 million, up from $36 million in the previous quarter
  • Gross Margin (GAAP): 60.8%, up from 58.6% in the same quarter last year
  • Market Capitalization: $4.79 billion

Part of point-of-sale and ATM company NCR from 1991 to 2007, Teradata (NYSE:TDC) offers a software-as-service platform that helps organizations manage their data across multiple storages and analyze it.

The customer problem that Teradata addresses is the challenge of managing large and growing amounts of data in a secure and scalable manner. With the oftentimes exponential growth of enterprise data, businesses need a reliable and scalable platform to collect, manage, and analyze data to gain insights and make good business decisions.

Teradata offers a range of software, hardware, and services so organizations can collect, store, analyze, and manage large amounts of data from multiple sources. Teradata Vantage is the cloud-based flagship product. For example, pharmaceutical giant Pfizer used Vantage to centralize and integrate data from clinical trials, manufacturing operations, and its supply chain. Vantage enabled Pfizer to perform predictive modeling to improve clinical trials yields and to eliminate redundancies in supply chain operations, leading to cost savings and better time to market for a number of popular and game-changing drugs.

From airlines looking to optimize routes and crews to e-commerce companies looking to understand consumer behavior, Teradata's customers come from a range of industries. The company generates revenue through the sale of software licenses, hardware, and services. The company offers a range of consulting and support services to help customers deploy and manage their data analytics platforms.

Data Infrastructure

Generating insights from system level data is an increasing priority for most businesses, but to do so requires connecting and analyzing piles of data stored and siloed in separate databases. This is the demand driver for cloud based data infrastructure software providers, who can more readily integrate, distribute and process information vs. legacy on-premise software providers.

Competitors in engineering and design software include Snowflake (NYSE:SNOW), IBM (NYSE:IBM), and SAP (XTRA:SAP).

Sales Growth

As you can see below, Teradata's revenue has been declining over the last two years, shrinking from $475 million in Q4 FY2021 to $457 million this quarter.

Teradata Total Revenue

Teradata's quarterly revenue was only up 1.1% year on year, which isn't particularly great. However, its revenue increased $19 million quarter on quarter, a strong improvement from the $24 million decrease in Q3 2023. This is a sign of acceleration of growth and very nice to see indeed.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Teradata's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 60.8% in Q4.

Teradata Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.61 left to spend on developing new products, sales and marketing, and general administrative overhead. While its gross margin has improved significantly since the previous quarter, Teradata's gross margin is still poor for a SaaS business. It's vital that the company continues to improve this key metric.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Teradata's free cash flow came in at $168 million in Q4, up 40% year on year.

Teradata Free Cash Flow

Teradata has generated $355 million in free cash flow over the last 12 months, a solid 19.2% of revenue. This strong FCF margin stems from its asset-lite business model, giving it optionality and plenty of cash to reinvest in its business.

Key Takeaways from Teradata's Q4 Results

The quarter itself was fine. Revenue beat by a bit, ARR missed by a bit, but profit and EPS both came in better. Guidance is a key driver of the stock weakness. ARR, revenue, and non-GAAP EPS guidance for 2024 were all below expectations. The stock is down 11.5% after reporting, trading at $43.18 per share.

Is Now The Time?

When considering an investment in Teradata, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

We cheer for everyone who's making the lives of others easier through technology, but in case of Teradata, we'll be cheering from the sidelines. Its , and analysts don't see anything changing. And while its strong free cash flow generation gives it re-investment options, the downside is its customer acquisition is less efficient than many comparable companies. On top of that, its gross margins show its business model is much less lucrative than the best software businesses.

Teradata's price-to-sales ratio based on the next 12 months is 2.5x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, we think there might be better opportunities in the market and at the moment don't see many reasons to get involved.

Wall Street analysts covering the company had a one-year price target of $62.20 per share right before these results (compared to the current share price of $43.18).

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