Teradata (TDC)

Cloud analytics platform Teradata (NYSE:TDC) reported revenue ahead of Wall Streets expectations in Q3 CY2025, but sales fell by 5.5% year on year to $416 million. On the other hand, next quarter’s revenue guidance of $396.7 million was less impressive, coming in 1.8% below analysts’ estimates. Its non-GAAP profit of $0.72 per share was 34.3% above analysts’ consensus estimates.

Company Overview

Pioneering data warehousing technology in the 1980s before "big data" was a common term, Teradata (NYSE:TDC) provides cloud-based data analytics and AI platforms that help large enterprises integrate, analyze, and leverage their data across multiple environments.

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.

Teradata competes with cloud hyperscalers like Amazon Web Services (NASDAQ:AMZN), Microsoft Azure (NASDAQ:MSFT), and Google Cloud (NASDAQ:GOOGL), as well as traditional database and analytics vendors such as Oracle (NYSE:ORCL), IBM (NYSE:IBM), and SAP (NYSE:SAP).

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Teradata’s demand was weak over the last five years as its sales fell at a 2.1% annual rate. This was below our standards and suggests it’s a low quality business.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Teradata’s recent performance shows its demand remained suppressed as its revenue has declined by 5% annually over the last two years.

This quarter, Teradata’s revenue fell by 5.5% year on year to $416 million but beat Wall Street’s estimates by 2.4%. Company management is currently guiding for a 3% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to decline by 1.1% over the next 12 months. Although this projection is better than its two-year trend, it’s hard to get excited about a company that is struggling with demand.

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

Teradata’s ARR came in at $1.49 billion in Q3, and it averaged 1.6% year-on-year declines over the last four quarters. However, this alternate topline metric outperformed its total sales, which likely means that the recurring portions of the business are growing faster than less predictable, choppier ones such as implementation fees. That could be a good sign for future revenue growth.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Teradata is extremely efficient at acquiring new customers, and its CAC payback period checked in at 19.1 months this quarter. The company’s rapid recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments.

For software companies like Teradata, gross profit tells us how much money remains after paying for the base cost of products and services (typically servers, licenses, and certain personnel). These costs are usually low as a percentage of revenue, explaining why software is more lucrative than other sectors.

Teradata’s gross margin is substantially worse than most software businesses, signaling it has relatively high infrastructure costs compared to asset-lite businesses like ServiceNow. As you can see below, it averaged a 59.3% gross margin over the last year. Said differently, Teradata had to pay a chunky $40.70 to its service providers for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Teradata has seen gross margins decline by 1 percentage points over the last 2 year, which is poor compared to software peers.

This quarter, Teradata’s gross profit margin was 60.8%, in line with the same quarter last year. On a wider time horizon, Teradata’s full-year margin has been trending down over the past 12 months, decreasing by 1.7 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs.

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

Teradata has been an efficient company over the last year. It was one of the more profitable businesses in the software sector, boasting an average operating margin of 11.5%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Teradata’s operating margin might fluctuated slightly but has generally stayed the same over the last two years, highlighting the consistency of its expense base.

This quarter, Teradata generated an operating margin profit margin of 14.7%, up 1.9 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Teradata has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 17.1% over the last year, slightly better than the broader software sector.

Teradata’s free cash flow clocked in at $88 million in Q3, equivalent to a 21.2% margin. This result was good as its margin was 5.5 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

Over the next year, analysts’ consensus estimates show they’re expecting Teradata’s free cash flow margin of 17.1% for the last 12 months to remain the same.

Teradata reported $406 million of cash and $521 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $417 million of EBITDA over the last 12 months, we view Teradata’s 0.3× net-debt-to-EBITDA ratio as safe. We also see its $0 of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

Revenue and EPS in the quarter beat. We were also impressed by Teradata’s optimistic full-year EPS guidance, which blew past analysts’ expectations. We were also glad its EPS guidance for next quarter exceeded Wall Street’s estimates. Overall, this print had some key positives. The stock traded up 8% to $22.39 immediately after reporting.

Updated: November 25, 2025 at 9:36 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Teradata, you should also grasp the company’s longer-term business quality and valuation.

Teradata doesn’t pass our quality test. To begin with, its revenue has declined over the last five years, and analysts don’t see anything changing over the next 12 months. And while its efficient sales strategy allows it to target and onboard new users at scale, the downside is its ARR has disappointed and shows the company is having difficulty retaining customers and their spending. On top of that, its operating margin hasn't moved over the last year.

Teradata’s price-to-sales ratio based on the next 12 months is 1.6x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $27.80 on the company (compared to the current share price of $28.25).