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DJ Teradata Stock Soars 35% on Triple-Digit Growth in Its Cloud Business -- Barrons.com

· 02/05/2021 10:49
By Eric J. Savitz

Teradata seems to be turning into Snowflake.

A longtime player in the data warehousing market, Teradata (ticker: TDC) has been moving aggressively to roll out cloud-based versions of its software, as it pushes to compete with Snowflake (SNOW) and other new competitors. With the company's fourth-quarter results, Teradata provided new disclosures on its progress on the cloud front, and pleasantly surprised everyone with triple-digit cloud growth.

In recent trading, Teradata shares were up 35.3%, at $36.60, after trading as high as $44.88, a new 52-week high. The S&P 500 was up 0.4%.

For the fourth quarter, Teradata posted revenue of $495 million, down 1% from a year ago but above the Street consensus forecast of $475 million. Recurring revenues were $383 million, up 9%. Non-GAAP profits were 38 cents a share, above consensus at 25 cents. But apparently what really has the stock rocking is the disclosure that public-cloud-based ARR (annual recurring revenue) was $106 million, up 165% from a year earlier.

The company also said it expects public-cloud ARR to increase at least 165% on a year-over-year basis in the first quarter, with non-GAAP profits of 38 to 40 cents a share, above consensus at 32 cents. For the full year, Teradata sees recurring revenue up in the mid-to-high single-digit range, with overall revenue up in the low single digits. Non-GAAP profits are projected at $1.50 to $1.58 a share; consensus had been $1.50. And the company sees public cloud ARR up at least 100% for the year.

"Our Cloud-First focus has been recognized by our customers and the marketplace," Teradata CEO Steve McMillan said in a statement. "Our cloud momentum has contributed to another strong quarter of performance, as we exceeded quarterly expectations for recurring revenue, profitability and free cash flow."

BofA Global Research analyst Wamsi Mohan on Friday upped his rating on Teradata shares to Buy from Neutral, with a new target of $55, up from $26. He sees multiple positive developments from the quarterly results, in addition to the strong cloud growth numbers. The company's business model transition to a subscription model is largely complete, he says. Guidance for modest revenue growth would be the first top-line increase since 2018. And he contends the stock is cheap, at less than 10 times free cash flow, and just 1.5 times forward sales. (Compare that to Snowflake -- which admittedly is growing far faster -- at 73 times forward sales.)

Mohan adds that the additional disclosures should help deflect skeptics on the stock. "We expect incremental disclosures including net retention rates over time to drive increased confidence," he writes. "While bears have worried about Teradata's ability to deliver a cloud-based solution, the recent disclosure adds confidence that the problem is not technology but go-to-market priorities and perception."

Citigroup analyst Tyler Radke writes in a research note the that quarter was one of Teradata's strongest in years. He finds the disclosure of cloud ARR above $100 million and growing 160% "impressive," and says that combined with triple-digit projected 2021 growth, it "demonstrate[s] that the cloud transition may be finally paying off." He repeats his Buy rating, while taking his target to $36 from $32.

Needham analyst Jack Andrews maintains his Hold rating on Teradata shares, but writes that he is "incrementally encouraged by the results and cloud-first vision outlined by the new management team, and look for greater evidence of sustainability regarding cloud traction and an inflection in the financials to become more positive."

Likewise, Cowen analyst J. Derrick Wood keeps his Market Perform rating, but ups his target to $30 from $25. He writes that Teradata "had a strong finish and seems to be gaining traction" with versions of its Vantage data analytics software run in public clouds. Writes Wood: "We remain on the sidelines as we believe Teradata remains a 'show me' story but the quarter suggests some directional improvements taking hold under new leadership."

Write to Eric J. Savitz at eric.savitz@barrons.com

(END) Dow Jones Newswires

February 05, 2021 10:49 ET (15:49 GMT)

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