What Happened?

Shares of data and analytics software provider Teradata (NYSE:TDC) fell 12.7% in the afternoon session after the company reported underwhelming third-quarter earnings. Revenue growth was flat, and ARR declined year on year, while the guidance for the next quarter implied further sales declines. Notably, Public cloud ARR growth was revised down to a range of 18% to 22% year-over-year (vs. previous est. of 28% to 32% growth). Teradata's EPS forecast for the next quarter also missed. 

On the other hand, Teradata provided optimistic full-year EPS forecast, which blew past analysts' expectations. Overall, this was a weaker quarter.

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What The Market Is Telling Us

Teradata’s shares are not very volatile and have only had 6 moves greater than 5% over the last year. Moves this big are rare for Teradata and indicate this news significantly impacted the market’s perception of the business. 

The biggest move we wrote about over the last year was 9 months ago when the stock dropped 24.1% on the news that the company reported fourth-quarter results, which missed Wall Street's expectations for ARR (annual recurring revenue), though revenue beat. Profit and EPS both came in better. 

Guidance was a key driver of the stock weakness. ARR, revenue, and non-GAAP EPS guidance for 2024 were all below expectations. To provide some insights into the weak outlook, management noted that the 2023 outlook for cloud and total ARR fell below the company's expectations. This was mostly attributed to deal timing issues. 

The company added, "There was a handful of large deals that slipped out of December, and each was worth $2 million or more of cloud ARR growth." 

Moving ahead, as the company shifts to a pure cloud subscription model, it expects on-prem erosions to have a 4% to 5% negative impact on total ARR in Q1 2024. However, the company expects "sequential dollar growth throughout the year with the second half of 2024 being much larger than the first half." Overall, this was a weaker quarter for the company.

Teradata is down 33.3% since the beginning of the year, and at $29.21 per share, it is trading 40.4% below its 52-week high of $48.99 from February 2024. Investors who bought $1,000 worth of Teradata’s shares 5 years ago would now be looking at an investment worth $959.28.

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