Teradata Corporation (TDC, Financial), a provider of analytic data platforms, marketing and analytic applications globally, accounts for 0.27% of the Technology Select Sector SPDR Fund ETF (XLK, Financial). The company posted lackluster first-quarter fiscal 2015 results, missing expectations on both top  and bottom lines. The negative sentiment around this stock is evident from the fact that it is trading below its 20-, 50-, and 100-day SMA. Let’s take a look at its performance and see what it holds for long-term investors.
First-quarter numbers
Teradata’s first-quarter revenue declined 7% year over year to $582 million, missing analysts’ expectations by $23.8 million. Services revenue decreased by 4% and Products revenues moved down 12% year over year.
Unfavorable business mix lead to 590 basis points, or bps, contraction in gross margin and operating income declined 61% year over year to $44 million. As a result, earnings per share came in at $0.30 versus $0.49 in the year-ago quarter and missed Street’s expectations by $0.12. The company repurchased $273M worth of shares in the first quarter.
Teradata exited the quarter with cash and cash equivalents of $881 million and debt of 600 million.
Data analytics market potential
Big Data analytics market is expanding at a rapid clip. According to a report from IDC:
“Big Data technology and services market will grow at a 26.4% compound annual growth rate to $41.5 billion through 2018, or about six times the growth rate of the overall information technology market. Additionally, by 2020 IDC believes that line of business buyers will help drive analytics beyond its historical sweet spot of relational (performance management) to the double-digit growth rates of real-time intelligence and exploration/discovery of the unstructured worlds.”
Given the tremendous market growth potential, Teradata should be able to drive growth going forward.
Innovative products
Teradata recently announced latest 2800 Series data warehouse appliance, featuring faster in-memory processing and also doubling the power. The new 2800 series helps in analyzing twice the amount of data at double the speed while using only 1/2 of the data center floor space.
The company also announced Teradata Software-Defined data warehouse. "Today, many organizations maintain multiple, separate data warehouses to meet unique business unit requirements or to comply with data privacy regulations across countries," said Hermann Wimmer, co-president, Teradata, and head of Teradata’s Data and Analytics Division. "Through the Software-Defined Warehouse, our customers will enjoy the benefits of simpler data warehouse management, consistent performance, as well as the cost-savings of maintaining a single system."
In addition, the company recently announced Anytime Anywhere Interface to Teradata Database for Web Mobile and Business Applications. Management said:
"Today’s economy demands that business users have anytime, anywhere database access to get the answers they need to manage their organization," said Dan Harrington, executive vice president, global consulting and support services, Teradata. "Teradata REST services solve the problems associated with remote database access, which normally requires driver software that is intrusive and complicated to manage on diverse and widespread devices."
Teradata also delivered the World's Most Advanced Hybrid Row and Column Database which allows customers to mix and match row and column technologies at will.
Continual technology enhancements landed top place for the company with top scores in Gartner’s recent Analytics Magic Quadrant.
Headwinds
Currency translation headwinds will persist due to a strong U.S. dollar. In fact this had an impact on the first-quarter also. In currency-neutral terms, sales declined 2% year-over-year, whereas on reported basis the decline was 7%. So, the currency translation headwinds will pressure the top line.
The current IT spending environment is going through a lull, especially in the U.S. Management said:
“Recent third-party surveys have reported that many of the 2015 IT budgets are flat to down, which confirms what our surveys have been showing from our larger U.S. customers.”
Increasing competition from rivals like EMC (EMC, Financial), NetApp (NTAP, Financial) and Oracle (ORCL, Financial) will results in pricing pressures, and this will limit margin expansion.
Final take
Teradata reaffirmed its outlook for fiscal 2015, despite weak first-quarter results. On currency neutral basis, fiscal 2015 revenues are expected to growth in the range of 3% to 5%, but on reported basis it is expected to remain flat or decline 2% year over year. Earnings per share are expected to be in the range of $2.50 to $2.70. In addition, the company has added $300M to its buyback program, raising its total authorization to $431M.
Although, the Big Data analytics market is growing at a rapid clip, Teradata’s next five year growth is pegged at a CAGR of 5.88% versus 6.97% during the preceding five years. Margins will be under pressure due to credible threat from rivals. With the expected growth rate, the stock looks overvalued on PEG. Short, as a percentage of float, remains at 14.50%. Also, short interest has increased from 21.06 million shares to 21.38 million shares.
All in all, this stock looks like a good candidate for sell as of now.
