What happened

Shares of Teradata (NYSE:TDC) are riding high on a fresh earnings report today. Stock prices topped out at a 14.4% gain near noon EDT.

So what

The maker of data management and analysis tools saw third-quarter sales declining 13% year over year, landing at $526 million. Adjusted earnings fell from $0.69 to $0.29 per share. Both metrics topped Wall Street's consensus estimates, which pointed to earnings near $0.23 per share on sales in the neighborhood of $511 million.

Looking ahead, Teradata expects fourth-quarter revenue of roughly $610 million, down from $626 million in the year-ago period. Adjusted earnings should stop near $0.50 per share, down from $0.67 per share in the fourth quarter of 2016. Both of these targets run far ahead of the current Street view, which calls for fourth-quarter earnings of $0.53 per share on $591 million in top-line sales.

Red charting arrow doing a hop, skip, and jump off a trampoline.

Image source: Getty Images.

Now what

Teradata is converting its sales process from one-time license payments to a subscription model, which spreads the total value of each sale out over a longer period but also improves the forward visibility of upcoming revenue trends. Many IT companies have taken this route in recent years, and the long-term result tends to be positive. The subscription process is supported by a heavy reliance on cloud computing solutions, where data analytics products are sold under the Teradata Everywhere banner and should be accessible from web browsers and mobile clients in the field.

In the third quarter, Teradata collected $267 million of its incoming revenue in the form of subscription fees, nudging just above the 50% mark of the company's total sales. A year ago, the recurring revenue contribution stood at 45%. The business model is not done evolving yet.

Teradata investors have enjoyed a market-beating return of 37% so far in 2017, and the company is on a roll. That's a welcome change from the market drudgery that started in 2015 as Teradata began its subscription-based sales process. I don't think it's too late to jump aboard this bandwagon, as the company and stock have a long way to go before meeting the full potential of a more efficient and predictable business plan.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.