Recurring revenue growth
Teradata (TDC) is shifting its existing business model of upfront payment options to subscription-based payments. The recurring revenues, which comprised nearly 49.0% of the total revenues, posted strong growth in the last five quarters, driven by new contract wins and increased renewal of deals.
In the graph above, we can see the recurring revenue growth of Teradata in the last five quarters. During this period, it increased at a CAGR (compound annual growth rate) of 2.0%.
In 4Q17, Teradata’s recurring revenues grew 8.4% YoY (year-over-year) to $271.0 million. Similarly, recurring revenues in fiscal 2017 came in at nearly $1.0 billion, up 7.1% from 2016.
Teradata expects its recurring revenues in fiscal 2018 to improve 12.0% YoY. It also believes that the recurring revenues will be composed of more than 50.0% of total revenues in 2018.
Within its recurring revenues, the cloud revenues are expected to expand in excess of 100.0% and more than double in 2018. Teradata also believes that its annual recurring revenue (or ARR) in fiscal 2018 could increase 10.0% YoY.
Based on its bookings mix, the company projects nearly 40.0%–50.0% of 2018’s new bookings to be structured as subscription-based transactions.
Such a change in its business strategy has reduced its top-line growth in fiscal 4Q17. However, Teradata remains optimistic that once it brings its customer base under the new payment loop, it can drive its ARR growth going forward.