Teradata (TDC) Q1 Earnings Preview: Navigating Cloud Growth Amid Revenue Challenges

As Teradata Corp (NYSE: TDC) prepares to report its Q1 2025 earnings on May 6, investors are bracing for a mix of progress and challenges. The quarter will test whether the company’s cloud transformation can offset persistent revenue declines and competitive pressures. Here’s what to watch.

Recent Performance: Cloud Growth vs. Revenue Slump

Teradata’s Q4 2024 results highlighted a stark divide between its cloud ambitions and broader struggles. While public cloud Annual Recurring Revenue (ARR) rose 18% in constant currency to $609 million, total ARR fell 6% year-over-year to $1.47 billion. This divergence underscores a strategic pivot: cloud services now account for 86% of total revenue, up from 81% a year ago, but declining ARR and billings signal broader demand weakness.

Despite these headwinds, the company delivered an adjusted EPS of $0.53, 23% above estimates, driven by cost discipline and strong free cash flow ($148 million in Q4). However, revenue dropped 10.5% to $409 million, missing expectations. Management’s guidance for Q1 2025 was similarly mixed—revenue midpoint of $432.5 million beat analyst estimates, but full-year EPS guidance of $2.20 fell 10% below expectations.

Cloud Momentum: A Silver Lining or Distraction?

Teradata’s cloud push is its clearest growth lever. The company projects public cloud ARR growth of 14-18% in 2025, aiming to offset a flat-to-2% decline in total ARR. CEO Steve McMillan has emphasized advancements like GPU-accelerated analytics and Bring-Your-Own-LLM support, positioning Teradata as a hybrid AI leader.

Yet skepticism lingers. While cloud ARR growth is robust, the segment still represents only ~41% of total ARR, leaving room for improvement. Analysts note that recurring revenue (86% of total revenue) has declined 6% year-over-year, suggesting reliance on cloud is growing but not yet reversing the broader slide.

Analyst Outlook: A Narrow Path to Beat Estimates

For Q1 2025, the consensus EPS estimate is $0.56–$0.57, a slight dip from $0.57 in Q1 2024. However, Zacks’ Earnings ESP model predicts a -4.85% surprise risk, with estimates cut 6.76% in the past month. Meanwhile, revenue is expected to fall 9.1% to $422.7 million, compounding concerns about declining sales.

Historically, Teradata has beaten EPS estimates in four straight quarters, including a +33% surprise in Q4. But this streak faces pressure from weaker billings (-21.6% year-over-year in Q4) and a Zacks Rank #3 (Hold), suggesting fading momentum.

Key Risks Ahead

1. Competitive Pressures: Rivals like Snowflake (SNOW) and IBM (IBM) are eroding market share, with Teradata’s stock down 34% since Q4 2023.
2. ARR Decline: A 6.1% annual ARR drop since Q4 2023 signals customer retention struggles.
3. Margin Pressures: While operating margins held steady at 9.5%, the full-year EPS guidance miss hints at cost challenges.

What to Watch on May 6

• Revenue: Will Q1 top the $432.5 million midpoint?
• Cloud Metrics: How does public cloud ARR perform against expectations?
• ARR Trends: Is the decline stabilizing?
• Management Commentary: Will they reaffirm cloud growth targets or hint at strategic pivots?

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Conclusion: A Cloud-Covered Horizon, But Fog Remains

Teradata’s Q1 results will hinge on whether its cloud growth can mask revenue weakness. While public cloud ARR is a bright spot, the company must prove it can:
- Reverse the 6% annual ARR decline through upselling cloud services.
- Stabilize free cash flow margins (36% in Q4) amid declining sales.
- Compete effectively against cloud-native rivals.

At 1.3x forward price-to-sales, the stock is undervalued, but risks like management transitions (CFO Claire Bramley’s exit) and slowing demand cloud the outlook. A beat on EPS and clarity on ARR could lift shares, but a miss risks further declines. Investors should watch for cloud adoption metrics and customer retention data as critical signals of Teradata’s path forward.

In short, Q1 is a pivotal test. Without a turnaround in recurring revenue or a surge in cloud wins, Teradata’s narrative of “returning to growth” may remain just that—a narrative.