Teradata’s Q1 Earnings Miss Highlights Persistent Revenue Headwinds Amid Cloud Shift

Teradata (NYSE:TDC) delivered a mixed performance in its Q1 2025 earnings report, with revenue falling short of analyst expectations despite a strong beat in adjusted earnings per share (EPS). The results underscore ongoing challenges in its traditional business segments, even as the company leans into cloud-driven growth. Here’s a deep dive into the numbers and what they mean for investors.

Revenue Declines and Analyst Miss: A Persistent Trend

Teradata reported total revenue of $418 million, down 10% year-over-year and missing the Zacks Consensus Estimate by 1.71%. This marks the third consecutive quarter of revenue misses, with the company exceeding expectations only once in the past four quarters. The miss was driven by:
- A 28% plunge in consulting services revenue to $50 million, signaling weakening demand for on-premise support.
- A 7% drop in product sales to $368 million, reflecting a shift away from traditional software licensing.

While recurring revenue ($358 million) accounted for 86% of total revenue (up from 83% in Q1 2024), its decline of 8% year-over-year highlights the fragility of Teradata’s core subscription model.

Cloud Growth vs. Structural Challenges

The report’s silver lining was public cloud ARR growth, which rose 15% to $606 million, underscoring progress in its strategic pivot to cloud-based analytics. However, this was offset by declines in other segments, leading to a 3% drop in total ARR to $1.442 billion. Management reaffirmed cloud targets for 2025—14-18% growth in public cloud ARR—but warned of a flat-to-2% decline in total ARR for the full year.

The disconnect between cloud success and overall revenue contraction points to deeper issues. Gross margins are deteriorating, with GAAP gross margin falling to 59.3% from 61.1% a year ago, suggesting cost pressures or pricing challenges in legacy segments.

Guidance and Investor Sentiment: Cautious Outlook

Teradata’s revised guidance paints a cautious picture for 2025:
- Full-year revenue: Expected to decline 4-7% in constant currency.
- Q2 2025 revenue: Projected to drop 7-9% year-over-year, with analysts forecasting $399.52 million—4.5% below Q1’s already weak result.

The stock has already priced in these concerns, with a 29.1% year-to-date decline versus the S&P 500’s -3.9%. The Zacks Rank of Hold (#3) reflects skepticism about near-term growth, exacerbated by lingering uncertainty around Teradata’s ability to transition its customer base to the cloud.

Conclusion: Cloud Potential vs. Structural Risks

Teradata’s Q1 results reveal a company at a crossroads. While its cloud initiatives show promise—public cloud ARR grew 15%—the broader business remains hobbled by declines in consulting services, product sales, and recurring revenue. The 3% drop in total ARR and 4-7% full-year revenue guidance suggest the transition to cloud is neither fast nor deep enough to offset legacy headwinds.

Investors should weigh two factors:
1. Cloud Momentum: If Teradata can accelerate its cloud ARR growth (targeting 14-18% for 2025) and reduce reliance on declining segments, it could stabilize margins and regain revenue traction.
2. Valuation and Sentiment: The stock’s 29.1% YTD decline and Zacks Hold rating indicate skepticism, but a valuation of just 5.6x trailing EV/EBITDA (per Yahoo Finance) leaves little room for error.

For now, the data leans toward caution. While cloud progress is encouraging, the revenue decline, margin pressures, and consistent misses against estimates suggest investors should remain skeptical until Teradata demonstrates sustainable growth in its cloud business and a turnaround in its core operations.