Teradata (TDC, Financial) is a leading database and analytics company which helps enterprises harness their big data. The global cloud database market size is projected to grow at a rapid 38% CAGR over the next five years to reach $68 billion by 2026, according to Valuates Reports. Teradata is in a prime position to ride this trend, in my opinion.
The company was founded in 1979 and had their IPO in 2007. The stock price is down 33% from its highs in October 2021. Thus, could the stock now be undervalued?
Innovative business model
Teradata specializes in databases and analytics and is recognized by Gartner as a cloud leader. Their multi-cloud data platform helps enterprises to harness the power of their big data and gain key insights. For example, one of the world's largest automakers, Volkswagen (FRA:VOW, Financial), uses Teradata for advanced analytics to boost the efficiency of body shop processes. Other leading customers include Groupon (GRPN, Financial).
The company has a vast number of partners which give them a range of distribution channels. They have a close partnership with Microsoft (MSFT, Financial) and work with consulting firms such as Accenture (ACN, Financial) and IBM (IBM, Financial), which increases product recommendations.
Enterprises are a complex beast with siloed data in multiple locations. This can make it difficult to analyze, harness and gain real insights. The company’s flagship product is called “Teradata Vantage,” this allows data from multiple cloud sources to be grouped, analyzed and queried from a single location.
Financials
Teradata’s revenue has been fairly stable over the past few years. They generated $1.8 billion in revenue in 2020, which increased by 4% to $1.9 billion in 2021. This is a far cry from the disruptive cloud data companies such as Snowflake (SNOW, Financial), which has doubled its revenue over the past year. However, unlike high growth stocks in the sector, Teradata is very profitable. They generated free cash flow of $432 million for full fiscal 21, which was double the prior year. To give some perspective, Snowflake (SNOW) only generated $56 million in free cash flow over the same period.
Teradata had a healthy gross margin of 62% for 2021. This equated to gross profit of $1.18 billion. They operate with a fairly low operating margin of 12%. However, this is partially due to their significant investments into R&D, which was $309 million for the year.
Valuation
In terms of valuation, Teradata has a very cheap price-sales ratio of 2, which is similar to legacy tech giant IBM. This is much cheaper than “high growth” database providers such as MongoDB (MDB, Financial), which trades at a price-sales ratio of 17. The stock also trades cheaper than legacy database provider Oracle (ORCL, Financial).
The GF Value line, a unique intrinsic value calculation from GuruFocus, indicates the stock is modestly overvalued at the time of writing.
Teradata is a tremendous company which has an established market position as an enterprise data analytics company. If we compare to other stocks in the industry, Teradata is trading cheaper than most peers, and given the growth opportunity in the cloud database industry, I believe this could be a valuable long-term opportunity.
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