What Are Teradata’s Key Sources of Revenue?

Teradata’s (NASDAQ: TDC) revenue has gradually declined over the last few years, primarily due to the company’s business model transition. Its key sources of revenues are Product and Service revenues. Its Product revenue has declined consistently over the years as some customers opt for lower-cost alternatives. Teradata addressed this issue with a business model transition from perpetual licenses to subscription-based licenses. This shift in focus should ensure constant recurring revenue in the long run.

Service revenue contributes to nearly 65% of the company’s overall revenue and includes marketing applications business, consulting and maintenance services. Revenue from this segment declined in 2017, primarily due to the sale of its marketing applications business, partially offset by recurring maintenance revenue and consulting services.

Going forward, we expect Product revenue to witness growth in 2018, as more customers adopt the cloud and subscription-based offerings. This growth should also be driven by increased IT spending. Looking at 2018, we estimate product revenue to grow 2.5% and earnings of just over 71 cents per share.

We have created an interactive dashboard on Teradata’s key revenue sources and the expected 2018 performance. You can adjust the revenues and multiple to see the impact on earnings.

Our price estimate of $35 for Teradata is slightly below the market.

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