Workday's Q4 Earnings Surge: AI Integration Drives Growth and Expansion

With Workday Leaning Into AI, Is Its Turnaround Working? Should Investors Buy the Stock Right Now?

Despite the recent gains, the financial and human capital management software company is still down more than 10% over the past year, as of this writing. Let's dig into its Q4 results and guidance to see if investors should buy the stock right now. Expanding operating margins For its fiscal 2025 Q4 ended January 31, Workday was able to produce results that topped analyst expectations. Revenue grew 15% year over year to $2.21 billion, with subscription revenue jumping 16% to $2.04 billion. That was just ahead of the $2.025 billion in subscription revenue it had forecast, while total revenue edged past the $2.18 billion analyst consensus, as compiled by LSEG. Adjusted earnings per share (EPS) climbed 22% to $1.92, easily surpassing the $1.78 consensus. AI was once again a big driving factor in its revenue growth, with 30% of customer expansions including at least one AI product. It said that its Extend Pro product, which allows customers to build AI applications on top of its platform, continues to be one of its fastest-growing products, with ACV (annual contract value) more than doubling sequentially. It also highlighted its Recruiting Agent AI solution, which saw its ACV nearly double quarter over quarter. Workday said it added a number of big customers in the quarter and now has 11,000 customers across various industries and geographies. It added that it serves more than 60% of the Fortune 500 and 30% of the Global 2000. Meanwhile, partnerships are also helping drive growth, with 15% of its new Q4 ACV coming from this channel. Workday's 12-month subscription revenue backlog rose by 15% to $7.63 billion, while its total subscription revenue backlog soared 20% to $25.06 billion. Both of these measure can be an indication of future revenue growth. The company continues to cash flow machine, producing operating cash flow of $2.46 billion and free cash flow of $2.19 billion for fiscal 2025. It ended the fiscal year with $8 billion in cash and marketable securities and nearly $3 billion in debt. It bought back 2.9 million shares at a cost of $700 million during the year. Its buybacks are done mostly to offset shareholder dilution from stock-based compensation. Looking ahead, the company forecast fiscal year 2026 subscription revenue to grow by 14% to $8.8 billion. It is looking for an adjusted operating margin of about 28%, which would be a nice uptick from the 25.9% in adjusted operating margin it managed in fiscal 2025. The revenue guidance was unchanged versus its prior expectation, while its adjusted operating margin was up from its prior guidance of 27.5% For fiscal Q1, it expects subscription revenue to grow by 13% to $2.05 billion, with an adjusted operating margin of about 28%. Workforce noted that while others rushed to monetize their AI offerings, it initially added these features to its core offerings. Now that its AI solutions are showing strong ROI (return on investment), it will look toward new monetization opportunities with them. It recently launched four new AI agents for contracts, payroll, financial auditing, and policy. It said these are non-task agents, unlike most in the market today, with each agent having multiple skills that can support people in their roles. Is it time to buy the stock now? Workday is no longer the ultra-high-growth name it was before the pandemic, when it would regularly put up 30% or more revenue growth. However, it is settling into a solid mid-teens revenue growth company that is starting to see some nice operating leverage, as demonstrated by the meaningful increase in adjusted operating margins it is projecting for fiscal 2026. The improving operating leverage means that its earnings should grow much more quickly than its revenue growth. That's still a highly attractive business at the right valuation. On that front, the company trades a forward price-to-sales (P/S) ratio of 7.6 and a forward price-to-earnings (P/E) ratio of just over 32 based on analysts' fiscal 2026 estimates. WDAY PE Ratio (Forward) data by YCharts That's a reasonable valuation for a stock in this market with Workday's high-margin, predictable SaaS model. Meanwhile, the company is seeing strong traction with its new AI solutions that should continue to drive revenue, while it will also look to continue to drive operating margin expansion as well. The combination of AI-fueled revenue growth and expanding operating margins makes Workday stock a buy in my book.

Workday Stock Soars as Results Top Estimates, CEO Sees AI Growth Opportunities

CEO Carl Eschenbach said the company sees growth opportunities with AI and the Trump administration's focus on efficiency and modernization of government systems. Shares of Workday (WDAY) are surging more than 10% in premarket trading Wednesday, a day after the human resource and finance software maker's fiscal 2025 fourth-quarter results topped analysts' estimates. Workday reported $2.21 billion in revenue, including $2.04 billion in subscription revenue, with both surpassing Visible Alpha consensus. Adjusted earnings per share (EPS) came in at $1.92, also exceeding estimates. The company projected first-quarter subscription revenue of $2.05 billion and $8.80 billion for fiscal 2026. Those were mostly in line with analysts' estimates. Workday CEO Carl Eschenbach said in prepared remarks in Tuesday's earnings call that the company believes it has a "growing opportunity with the U.S. federal government thanks to the administration's strong focus on driving efficiencies and IT modernization." Eschenbach also said the growth of Workday's artificial intelligence (AI) products has put the technology "front and center in every conversation I have with customers, prospects, and partners. They want to move beyond incremental productivity gains -- they're looking for [return on investment] that will help drive growth back into their business." Workday shares, which had lost 17% of their value over the past 12 months entering Wednesday, are up 11% in premarket trading.

Workday Tops EPS Expectations

Workday surpassed earnings expectations in its latest release, highlighting strong subscription growth and AI investments despite economic challenges. Workday (WDAY -2.52%), a leader in enterprise cloud applications for finance and human resources, reported its fourth-quarter results for fiscal 2025 on Feb. 25. The company exceeded analyst expectations with a non-GAAP earnings per share (EPS) of $1.92 compared to an anticipated $1.78. Total revenue grew by 15.0% year-over-year, reaching $2.211 billion, exceeding estimates of $2.183 billion. This performance reflects effective cost management and robust revenue generation, closing a strong quarter despite ongoing global uncertainties. Source: Analyst estimates for the quarter provided by FactSet Company Overview and Business Focus Workday specializes in cloud-based software solutions for human capital management (HCM) and financial management. Its business model centers on providing integrated enterprise solutions that enhance operational efficiency and decision-making through AI-powered platforms. The company's strategic focus lies on integrating artificial intelligence (AI) across its offerings, which includes innovative products like the Workday Agent System of Record. These platforms are designed to handle complex business functions, granting competitive advantages in data-driven environments. Workday's current business strategy emphasizes dynamic product development and strategic partnerships. Its critical success factors include the comprehensive suite of solutions that enhance efficiency across multiple business functions and a strong customer-centric approach that prioritizes customer satisfaction and retention through personalized services and extensive support. Quarterly Highlights and Achievements During the fourth quarter, Workday experienced notable achievements. Its subscription revenue rose by 15.9% year-over-year, signifying continued demand and customer base expansion. The AI-enhanced product lineup and expanded partnerships, such as with Randstad and TechWolf, supported this effort. Furthermore, Workday strengthened its AI capabilities by integrating AI agents that enhance customer value and operational capabilities. The company's financial health was underscored by favorable revenue performance, surpassing both prior year figures and analyst projections. The non-GAAP operating margin also improved, reaching 26.4%, an increase from 24.0% in the previous year. Such solid margins underscore effective cost management amid rising restructuring expenses, which totaled $75 million. Despite these successes, Workday also navigated challenges, including intense competition and economic uncertainties in certain regions like EMEA. These factors led to scrutiny on deals and affected profitability, with some revenue being deferred due to product deliverables. Another key hurdle was overcoming restructuring expenses, which impacted GAAP earnings. The company implemented a customer-centric strategy that resulted in significant wins, particularly in the government and education sectors. However, the increasing global competition for AI talent could present a bottleneck in sustaining rapid innovation and growth. Outlook and Future Prospects Looking forward, Workday provided an optimistic fiscal 2026 outlook with anticipated subscription revenue growth of 14%, aiming to reach $8.8 billion. The company targets an improved non-GAAP operating margin of approximately 28.0%, reflecting a focus on enhancing profitability while navigating economic headwinds. In anticipation of long-term growth, Workday plans to sustain its strategic emphasis on AI innovation and international expansion. It is also investing in boosting its AI capabilities and expanding into new sectors, promising strong future performance. Investors should watch how these initiatives unfold alongside economic developments and competitive pressures in the marketplace.

Workday's stock pops as it reports strong earnings beat and targets federal customer wins - SiliconANGLE

Workday's stock pops as it reports strong earnings beat and targets federal customer wins Human resources and financial management software company Workday Inc.'s stock popped more than 12% in extended trading today after it posted strong quarterly results that surpassed analyst's expectations. The company delivered fourth quarter earnings before certain costs such as stock compensation of $1.92 per share, easily beating Wall Street's target of $1.78, while revenue rose 15% from a year earlier to $2.21 billion. That also came in above the analyst's consensus estimate, of $2.18 billion. Net income for the period fell from $1.19 billion one year earlier to just $94 million, though the company explained the discrepancy. It noted it had benefited from a deferred tax asset valuation allowance of $1.1 billion in the year-ago quarter, so the decline was not due to any alarming issues on the business side. Workday sells a cloud-based platform for human capital and financial management, helping businesses to manage their workforces and financial processes. Its tools encompass applications for payrolls, benefits administration and financial reporting. Like many enterprises, Workday has been keen to expand the artificial intelligence capabilities of its platform. Last year, it rolled out a new version of Workday Illuminate, its flagship AI offering, which introduced generative AI agents that can help to automate business processes and workflows in areas such as recruitment, employee management, expense reporting, succession planning and more. Workday Chief Executive Carl Eschenbach (pictured) said in a call with analysts that the company has seen enormous demand for Illuminate's AI agents, which can work with minimal input from humans. "AI is front and center in every conversation I have with customers, prospects and partners," Eschenbach said. "They want to move beyond incremental productivity gains, and they're also looking for ROI that helps them drive growth back into their business." The CEO added that around 30% of the company's expanded deals with existing customers in the quarter related to at least one AI product, similar to the previous quarter. He told analysts that this may improve, as the company has many new AI products in the pipeline, set to launch later this year. Another big positive for Workday is Elon Musk's Department of Government Efficiency, which has been tasked by U.S. President Donald Trump with slashing the federal government's spending, Eschenbach said. He noted that the company has been laser-focused on federal sales for the last 18 months, and insisted its products could be just what Musk and his team are looking for. "The systems they have, specifically their ERP, HCM and financial systems, are very antiquated," the CEO explained. "In fact, the majority of them are still on premises, which means they're inefficient. And as we think about DOGE and what that could potentially do going forward, if you want to drive efficiency in the government, you have to upgrade your systems." Under Eschenbach, who became Workday's sole CEO last year, the company has made a lot of changes. Last month, he said the company will be laying off 1,760 employees, or around 8.5% of its total staff, to free up cash to invest in its AI research. He has also made a number of executive changes, with the latest being to bring in former Google Cloud executive Gerrit Kazmaier as Workday's new president of products and technology. He said Kazmaier is set to replace Sayan Chakraborty, who currently holds that post, but is set to retire after more than a decade with the company. Prior to that, Eschenbach brought in former UiPath Inc. CEO Rob Enslin to serve as Workday's new president and chief commercial officer. Looking ahead to the next quarter, Workday issues a somewhat conservative forecast, saying it sees subscription revenue of around $2.05 billion and an adjusted operating margin of 28%. Wall Street is looking for slightly more subscription revenue of $2.06 billion, albeit with a lower adjusted operating margin of 26.7%. For fiscal 2026, Workday is shooting for $8.8 billion in subscription revenue and an adjusted operating margin of 28%. The revenue forecast is a tad higher than the number it provided three months earlier, and implies growth of 14% compared to fiscal 2025, where it delivered $7.718 Billion in subscription sales. The after-hours gain recorded today means Workday's stock is essentially flat in the year-to-date, slightly off the pace of the broader S&P 500 index, which is up 1% so far.

Workday beats quarterly revenue estimates on steady demand

Feb 25 (Reuters) - Workday (WDAY.O), opens new tab beat Wall Street expectations for fourth-quarter revenue on Tuesday, benefiting from strong demand for its human capital management software as clients increased spending in an easing economy. Shares of the California-based company rose 6.7% in extended trading. Cooling inflation and a stable job market are encouraging businesses to hire, boosting demand for workforce management solutions such as those offered by Workday. The company's incorporation of generative artificial intelligence (GenAI) and machine learning into its product offerings has further improved investor confidence. "Our fourth quarter results were driven by solid performance across key growth areas of the business, including continued momentum with our full suite and financials products, growing demand for our AI SKUs, and strong execution across industry verticals," said CFO Zane Rowe. The company recently launched the Workday Agent System of Record to help organizations manage all their AI agents, from Workday and third-party sources alike. Earlier in February, Workday said it would cut around 1,750 jobs, or 8.5% of its current workforce, as the human capital management firm invests heavily in artificial intelligence to counter a softer macroeconomic environment. Total revenue for the fourth quarter ended January 31 came in at $2.21 billion, beating analysts' estimates of $2.18 billion, according to data compiled by LSEG. The company reported subscription revenue of $2.04 billion, while analysts were expecting $2.03 billion. Workday forecast subscription revenue for the first quarter to be $2.05 billion, compared with expectations of $2.06 billion. The company's fiscal 2026 subscription revenue forecast of $8.80 billion is in line with estimates. Reporting by Juby Babu in Mexico City; Editing by Mohammed Safi Shamsi Our Standards: The Thomson Reuters Trust Principles., opens new tab Suggested Topics:Technology

Workday beats estimates for revenue and profit, stock jumps

Carl Eschenbach, CEO of Workday speaks on CNBC's Squawk Box outside the World Economic Forum in Davos, Switzerland on Jan. 23, 2025. Workday, the maker of human resources and finance software, reported better-than-expected quarterly results on Tuesday. The shares popped more than 7% in extended trading. Here's how the company did in comparison with LSEG consensus: Revenue increased 15% year over year in the quarter that ended on Jan. 31, according to a statement. Net income fell to $94 million, or 35 cents per share, from $1.19 billion, or $4.52 per share, in the same quarter a year earlier. "The prior year period benefited from a $1.1 billion release of the valuation allowance related to U.S. federal and state deferred tax assets," Workday said. The company said it's seeing greater demand for artificial intelligence tools. "Workday's unified platform gives customers the ultimate advantage -- helping them unlock value faster, reduce total cost of ownership, and harness the power of AI across our best-in-class HR and finance solutions," CEO Carl Eschenbach said in the statement. During the quarter, Workday announced the hiring of former UiPath CEO Rob Enslin as its new president and chief commercial officer. Workday also said it would use AI to summarize employee feedback in its Peakon product. The company called for a 28% adjusted operating margin on $2.05 billion in subscription revenue for the fiscal first quarter. Analysts polled by StreetAccount had expected an adjusted margin of 26.7% and $2.06 billion in revenue. For the 2026 fiscal year, Workday now sees an adjusted margin of 28%, with $8.8 billion in subscription revenue, implying 14% growth. That's slightly higher than the forecast that management gave in November. As of Tuesday's close, Workday shares were flat year over year, while the S&P 500 index was up 1%. Executives will discuss the results with analysts on a conference call starting at 4:30 p.m. ET. This is breaking news. Please check back for updates.

Workday beats quarterly revenue estimates on steady demand

(Reuters) - Workday beat Wall Street expectations for fourth-quarter revenue on Tuesday, benefiting from strong demand for its human capital management software as clients increased spending in an easing economy. Shares of the California-based company rose 6.7% in extended trading. Cooling inflation and a stable job market are encouraging businesses to hire, boosting demand for workforce management solutions such as those offered by Workday. The company's incorporation of generative artificial intelligence (GenAI) and machine learning into its product offerings has further improved investor confidence. "Our fourth quarter results were driven by solid performance across key growth areas of the business, including continued momentum with our full suite and financials products, growing demand for our AI SKUs, and strong execution across industry verticals," said CFO Zane Rowe. The company recently launched the Workday Agent System of Record to help organizations manage all their AI agents, from Workday and third-party sources alike. Earlier in February, Workday said it would cut around 1,750 jobs, or 8.5% of its current workforce, as the human capital management firm invests heavily in artificial intelligence to counter a softer macroeconomic environment. Total revenue for the fourth quarter ended January 31 came in at $2.21 billion, beating analysts' estimates of $2.18 billion, according to data compiled by LSEG. The company reported subscription revenue of $2.04 billion, while analysts were expecting $2.03 billion. Workday forecast subscription revenue for the first quarter to be $2.05 billion, compared with expectations of $2.06 billion. The company's fiscal 2026 subscription revenue forecast of $8.80 billion is in line with estimates. (Reporting by Juby Babu in Mexico City; Editing by Mohammed Safi Shamsi)