If you aren't familiar with the concept of big data, it is a play on the burgeoning growth of the new services Internet 2.0 has presented us. According to the most recent Teradata 10-K: "...examples include web logs, radio-frequency identification, sensor and social network data, Internet text and search indexing, call detail records, genomics, astronomy, biological research and military surveillance information, medical records, photography archives, video archives, and large scale eCommerce data.". The whole shebang. Just about anything we do with Internet applications.
We have ignition in the volcanic rise in all of this information, and, Teradata CEO Michael Koehler brings it all to a head in the Q1 conference call: "Looking to the future, the explosion of data will continue. IDC says this explosive growth means that by 2020, our digital universe will be 44x as big as it was in 2009. Whether data grows by 44x or 22x by 2020, it's a lot of data corporations will need to manage and extract value from.".
Going a step further, in Teradata's Q2 conference call, CEO Koehler explains: "All of this big and complex data presents an opportunity and a threat to corporations. The one's who are able to manage the data and extract new insights and precision from it will have an advantage over their competitors. The corporations that don't manage this data explosion and extract value from it, will be stuck with the cost of the data and will be at a competitive disadvantage.".
A probable scenario in active data warehousing was given in the August 4th, 2011 S&P Report on Teradata by analyst Thomas Smith: "...a business's call center could produce raw data on call attributes (e.g., number of calls, duration, agent, customer, dropped calls, results), which could be a starting point for mapping and analyzing overall interactions with customers, including Internet communications, which could then become the basis for a plan to improve customer satisfaction.".
Another example is given by Teradata CIO Stephen Brobst on May 4th, 2011 in an article by Arima Salah-Ahmed in Daily News Egypt: "If I introduce a new product or service, I can get immediate feedback that would've taken months through focus groups and research. I can readjust my pricing and market position immediately with that data.".
Teradata is attempting to get control of the information asylum by going for the jugular. As mentioned earlier, with the acquisitions of Aster Data and Aprimo, the company now throws its weight around in the explosive arena of cloud computing. Aster Data was purchased for unstructured big data and Aprimo was absorbed for integrated marketing management and applications.
Mr. Koehler talks about the Aprimo move in the Q1 conference call: "Moving on to Aprimo. The acquisition has made Teradata a leader now in integrated marketing management...But in addition, Aprimo serves as a foundation to build out more applications and to leverage their Software as a Service and Cloud capabilities more broadly, longer term.....we have already merged our existing Teradata applications into Aprimo.".
It should be noted that according to Chris Kanaracus from the IDG News Service in a posting titled Teradata Buys Aster Data, Boosts 'Big Data' Wares: "Aster Data's platform is also available for cloud-based deployments on Amazon Web Services, AppNexus, Dell's Data Cloud, and Terremark...".
Although there is the potential for good, solid growth for Teradata from new customers in the largest 3,000 global companies, there is also the aspect of additional business from its existing client base. As the most recent 10-K points out: "Data warehouses are typically built one project at a time. For example, an initial data warehouse may start with a single subject area, which forms the foundation of data that is available to be leveraged for the next project, and so on. Therefore, a customer with a large order in one quarter is likely to generate additional revenue for subsequent periods.".
Head honcho Koehler discusses the future going forward for the company in terms of sales and earnings growth in the Q2 conference call: "...as we look out longer-term, we're looking at a minimum of 10% of revenue growth over the longer term. And over the longer term, we're looking at earnings per share growth of 1.5x at revenue growth. I think shorter term, we have an opportunity like we're seeing right now for higher revenue growth, but maybe not as robust of an EPS growth relative to the revenue growth that we're making.". That near term revenue growth he is referring to is also discussed in the same transcript: "Turning to guidance, we are increasing our revenue growth guidance for 2011, from a range of 14% - 16% to a range of 18% - 20%. And we're increasing EPS from a range of $2.13 to $2.23 to a range of $2.20 to $2.28.".
Nothing gets an investor's blood boiling like a miss on heightened expectations, and, Teradata has been handcuffed since the CEO reported its numbers on August 4th, falling from a price of $54 to its current valuation of roughly $45. The sinkhole the stock has fallen into can be attributed to the overall market sell-off, but it was also trading at a fairly lofty valuation.
Consensus earnings estimates on Yahoo Finance give Teradata an EPS of $2.26 for the current year which gave it a P/E Ratio of 25 at $56/share. Not too expensive, but for a company which is slated to grow at a five year CAGR (compound annual growth rate) of 13.88%, you can find a better entry point. Many investors can't contain their enthusiasm about the prospects of the markets going forward, like they are going to make beaucoup bucks by putting their money on any security in the technology space. I don't believe that to be true. This is no ordinary recession we are experiencing. As of this writing, Teradata's P/E Ratio is 20. A very tempting valuation, but still too expensive for me as earnings contract on a global scale.
I don't mean to be heavy handed with a company like Teradata. It's a quality organization that was formed in 1979 and spun out of NCR in 2007. R&D is 7.6% of 2010 revenues which is a plus. It operates on a global basis with a footprint in 60 countries. It also has a broad customer base with the top ten customers accounting for only 16% of revenues. If you get the opportunity to read any of their conference call transcripts, you'll be impressed by the heavy hitters they do business with. For an example, eight of the top ten retailers utilize Teradata, companies like Walmart (WMT) and Best Buy (BBY). I'd like a quality equity like Teradata for my portfolio, but until the global debt situation is resolved, I'll just watch and wait.