Teradata’s Pivot: Can Cloud Momentum Offset Legacy Decline?

Teradata shares, trading near $31.30 following a modest Friday pullback, find themselves at a strategic crossroads. The company is navigating a delicate transition, balancing a shrinking legacy business against a rising cloud revenue stream. Its latest quarterly results highlighted this dynamic, revealing improved profitability even as total revenue contracted. The central question for investors is whether the growth in cloud services can ultimately reverse the overall top-line decline.

For the third quarter, Teradata reported revenue of $416 million, a 5% year-over-year decrease. This figure came in below certain market expectations that had preceded the official release. Despite the drop in sales, the company demonstrated notable operational efficiency. Key profitability metrics improved: the non-GAAP gross margin expanded to 62.3% from 61.6%, and the non-GAAP operating margin rose to 23.6% from 22.5%. Non-GAAP diluted earnings per share reached $0.72, surpassing the consensus estimate of approximately $0.58. Furthermore, free cash flow showed strong growth, increasing by 28% year-over-year to $88 million.

The Cloud Engine and Strategic Positioning

The most promising growth indicator stems from Teradata's cloud segment. Public Cloud Annual Recurring Revenue (ARR) climbed to $633 million, an 11% increase compared to the prior year. However, Total ARR remained largely flat at $1.49 billion. Management has emphasized a strategy to differentiate its platform, notably at the Barclays Global Technology Conference, by focusing on "Agentic AI" workloads to stand apart from standard cloud data warehouse offerings. While cloud revenues provide a crucial counterbalance to declining on-premise sales, they have not yet been sufficient to return the company's total revenue to a growth trajectory.

Should investors sell immediately? Or is it worth buying Teradata?

Capital Allocation and Market Sentiment

In a significant move on November 18, Teradata's board authorized a new share repurchase program worth $500 million, effective through 2029. This decision signals management's belief that the equity is undervalued relative to the firm's cash-generation capabilities. Analyst perspectives on the stock remain mixed. The average price target sits around $29.43, with a wide range spanning from roughly $23 to $42. Many research firms maintain a cautious stance, awaiting clearer signs of accelerated growth in either ARR or overall revenue.

Forward Guidance and the Path Ahead

Looking to the near term, Teradata provided guidance for the fourth quarter, projecting non-GAAP diluted EPS in the range of $0.53 to $0.57. For the full fiscal year 2025, the company expects non-GAAP EPS between $2.38 and $2.42. The near-term performance of the stock is likely to hinge on whether Public Cloud ARR growth accelerates in the coming months of 2026, providing enough momentum to fully offset the persistent softness in the legacy business. The company's journey through this transitional phase continues to be a key focus for the market.