What Happened:

Shares of data and analytics software provider Teradata (NYSE:TDC) fell 24.1% in the morning session after the company reported fourth-quarter results, which missed Wall Street's expectations for ARR (annual recurring revenue), though revenue beat. In addition, profit and EPS both came in better. Guidance was a key driver of the stock weakness. ARR, revenue, and non-GAAP EPS guidance for 2024 were all below expectations. 

To provide some insights into the weak outlook, management noted that the 2023 outlook for cloud and total ARR fell below the company's expectations. This was mostly attributed to deal timing issues. The company added, "There was a handful of large deals that slipped out of December, and each was worth $2 million or more of cloud ARR growth." Moving ahead, as the company shifts to a pure cloud subscription model, it expects on-prem erosions to have a 4% to 5% negative impact on total ARR in Q1 2024. However, the company expects "sequential dollar growth throughout the year with the second half of 2024 being much larger than the first half." Overall, this was a weaker quarter for the company.

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What is the market telling us:

Teradata's shares are not very volatile than the market average and over the last year have had only 5 moves greater than 5%. But moves this big are very rare even for Teradata and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 2 months ago, when the company dropped 7.1% on the news that Chief Financial Officer Claire Bramley issued a cautionary note during a conference, indicating the possibility of a high-value deal facing a delay in the fourth quarter. Bramley added that the development could result in Cloud ARR (recurring revenue) falling towards the low end or slightly below the previous guidance range. Importantly, she emphasized that the deal is not lost but is expected to materialize in 2024. 

If the situation that Bramley plays out as planned, this is merely a short-term timing issue rather than a longer-term fundamental issue. Bramley then reaffirmed the company's commitment to achieve over $1 billion of cloud ARR by the end of 2025. Finally, she assured investors that the company has yet to observe any issues concerning other key metrics, including free cash flow, revenue, and profitability.

Teradata is down 14.7% since the beginning of the year, and at $37.36 per share it is trading 34.9% below its 52-week high of $57.41 from July 2023. Investors who bought $1,000 worth of Teradata's shares 5 years ago would now be looking at an investment worth $806.71.

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