Workday's Q1 Earnings Beat Expectations, but Stock Drops on Conservative Guidance

Despite strong earnings beat, Workday's stock wobbles on disappointing guidance - SiliconANGLE

Despite strong earnings beat, Workday's stock wobbles on disappointing guidance Workday Inc. delivered better-than-expected revenue and reaffirmed its full-year outlook on subscription sales, but its guidance for the current quarter did not impress investors very much, and its stock was trading lower after hours. The human resources software company delivered first-quarter earnings before certain costs such as stock compensation of $2.23 per share, beating Wall Street's estimates of $2.01 by a comfortable margin. Revenue clocked in at $2.24 billion, up 13% from a year earlier and ahead of the expected $2.22 billion. Subscription revenue, which makes up the bulk of the company's sales, also rose 13% from a year earlier, to $2.06 billion. All told, Workday was able to eke out a net profit of $68 million in the quarter, lower than the $107 million in net income it recorded in the year-ago period. Workday Chief Executive Carl Eschenbach (pictured) hailed what he said was "another solid quarter", saying that the company's performance is a testament to the durability of its business and the relevance of its platform. "CEOs increasingly turn to us to drive efficiency, agility and growth," the CEO added. "We are delivering real ROI for our customers by helping them effectively manage their most critical assets - people and money - on one unified platform with AI at the core." Workday is the creator of a cloud-hosted software platform for human capital and financial management, helping large and medium-sized businesses manage their workforces and financial processes. Its flagship product includes applications for tasks such as payroll management, benefits administration and financial reporting. Like many software firms, Workday has been enthusiastic about the prospects of artificial intelligence, racing to enhance its platform with generative AI capabilities. Last year, it launched an updated version of its Workday Illuminate AI platform, introducing AI agents that can help to automate various business processes and workflows in areas such as recruitment, expense reporting and succession planning. The company has since doubled-down on agentic AI, and earlier this month it announced yet another suite of new agents, including a contract intelligence agent that's designed to quickly surface key details in agreements, and another one optimized for negotiating contracts. It also debuted a new "frontline agent" for reporting employee absences and finding replacements, and a contingent sourcing agent to streamline the process of hiring workers for temporary roles. While Workday has been quick to expand its AI capabilities, some investors worry that the technology could ultimately undermine its human resources management business if it ends up causing major disruption to labor markets. The company also faces broader macroeconomic uncertainties. While many technology firms have struggled this year amid the uncertainty linked to U.S. tariffs and other changing government policies, investors have been more optimistic about the prospects of software firms, whose products aren't directly in the firing line. Workday's peers, such as Snowflake Inc. and Microsoft Corp., say they've seen no noticeable impact on customer behavior. But in any case, Workday has set itself the task of boosting its profitability, and earlier this year announced a significant number of layoffs. In an update today, Workday Chief Financial Officer Zane Rowe said the company remains "focused on executing in this uncertain environment." His comments set the tone for a conservative forecast. For the current quarter, the company is looking at subscription revenue of around $2.16 billion, exactly in line with Wall Street's consensus estimate. The company also reiterated its full-year subscription revenue guidance of $8.8 billion at the midpoint. Subscription revenue makes up more than 90% of the company's total sales, and is therefore one of the most keenly-watched metrics for investors. Unfortunately for Workday, the market had been hoping for a brisker pace of growth, and its stock fell more than 6% on the report.

Workday: Solid Q1 Revenue, Earnings Beat, Stock Gets Punished For Cautious Guidance -- These Analysts Revise Price Target - Workday (NASDAQ:WDAY)

Workday Inc WDAY tanked after the company on Thursday reported its fiscal first-quarter results. The announcement came amid an exciting earnings season. Here are some key analyst takeaways. KeyBanc Capital Markets On Workday Analyst Jason Celino reiterated an Overweight rating, while reducing the price target from $335 to $325. Workday reported 12-month subscription backlog (cRPO) growth of 15.6%, above Street expectations of 15.1%, Celino said in a note. He added, however, that this includes "0.5 points of contribution from ST tenant contracts, which were not previously included in the cRPO definition." Management's cRPO growth guidance of 15%-16% for the fiscal second quarter also includes this contribution, representing "a slight miss on an apples-to-apples basis," the analyst wrote. He added that the price target is being lowered to reflect "incremental macro uncertainty." Piper Sandler On Workday Analyst Brent Bracelin maintained a Neutral rating, while raising the price target from $230 to $255. Workday delivered a topline beat of $9 million, versus $8 million in the prior four quarters, Bracelin said. Its revenues grew by 13.4% year-on-year, ahead of Piper Sandler's 13.0% estimate, he added. Subscription revenue came in at $2.059 billion, the analyst stated. "Operating margin came in strong at 30% (vs. 26% last quarter) relative to the 28% guide, partially driven by moderated headcount growth," he further wrote. Goldman Sachs On Workday Analyst Kash Rangan reaffirmed a Buy rating, while lifting the price target from $275 to $300. Workday recorded subscription revenue growth of 13.4% and operating margins of 30.2%, both higher than consensus estimates, Rangan said. The stock came under pressure due to management's lower-than-expected guidance for the fiscal second quarter, of 13.5% subscription revenue growth versus consensus of 13.7%, he added. The market reaction appears "overblown," given that Workday's revenue growth is back-half weighted, largely driven by already signed deals, while "continued prudence in the face of macro uncertainty makes sense," the analyst wrote. WestPark Capital On Workday Analyst Curtis Shauger reiterated a Buy rating, while raising the price target from $315 to $328. Workday delivered a performance that "demonstrated solid growth and exceptional profitability," Shauger said. Although the company reported in-line revenues of $2.24 billion, its earnings of $2.23 per share came in significantly ahead of the consensus of $2.01 per share, the analyst stated. The upside was driven by higher-than-expected operating margins, "which we believe reflects the full impact of its recent headcount reductions," he wrote. Stifel On Workday Analyst Brad Reback maintained a Hold rating, while cutting the price target from $310 to $275. Workday's stock plummeted after the results due to cRPO growth coming at the midpoint of management's guided range and was aided by benefits from short-term tenant contracts "that were not historically included in cRPO," Reback said. "Going forward, these tenant contracts are expected to contribute a full 1pt of uplift to cRPO growth for each of the remaining FY26 quarters," he added. Investors had expected Workday's core business to record an acceleration in bookings, the analyst stated. "With subscription/bookings growth likely to remain in the mid-to-low-teens area in the coming quarters, even as AI bookings accelerate, we do not expect op-margin upside alone to drive meaningful multiple expansion from current levels," he further wrote. Check out other analyst stock ratings. RBC Capital Markets On Workday Analyst Rishi Jaluria maintained an Outperform rating and price target of $340. The company reported revenue of $2,240 million, representing 12.6% year-on-year growth, beating consensus of $2,218 million, Jaluria said. "Partner traction continued in Q1, with partners representing more than 20% of net new ACV (up nicely from 15% in Q4)," he wrote. Workday's non-GAAP earnings came in at $2.23 per share, "nicely above consensus" of $2.01 per share, the analyst stated. He added, however, that the total revenue beat was just by 1.0%, "driven by better-than expected services revenue and a slight beat on subscription revenue." BofA Securities On Workday Analyst Brad Sills reaffirmed a Buy rating and price target of $295. The company, including tenant deals in cRPO, raised questions, Sills said. He added, however, that Workday's transparency is appreciable and that the including is not "a negative, given the recurring nature of these deals." The company achieved healthy results across geographies and executed well on generating balanced growth, the analyst stated. "The company is on pace to deliver a solid 260 basis points margin expansion this year, driven by the reduction in force and efforts to hire in lower cost geographies," he further wrote. Citizens On Workday Analyst Patrick Walravens reiterated a Market Outperform rating and price target of $315. Workday's first-quarter subscription revenue growth marks a deceleration from 15% in the previous quarter, Walravens said. However, management reiterated their subscription revenue guidance for the second quarter of $2.16 billion, representing 13.5% year-on-year growth, he added. The company guided to non-GAAP operating margin of around 28.0%, better than consensus of 27.6%, the analyst stated. The full-year subscription revenue of $8.80 billion represents 14% year-on-year growth, he mentioned. Needham On Workday Analyst Scott Berg maintained a Buy rating and price target of $300. The company's cRPO growth reflects new tenants, which was not reflected in the 14.5%-15.5% guidance, Berg said. "AI sales continue to gain momentum and were included in 25% of 1Q expansion deals," he wrote. Although management's commentary was broadly in-line with expectations, suggesting no material impact of macro uncertainty, the analyst stated. He added, however, that the guidance "reflects continued conservatism on the macro." Guggenheim Securities On Workday Analyst John DiFucci reaffirmed a Neutral rating on the stock. Workday's results reflected "a challenging IT spending environment," DiFucci said. About half the beat on subscription growth was due to a positive currency impact, he added. This is why the second-quarter guidance came just in-line with expectations and "none of the F1Q beat flowed through to annual guide," the analyst stated. WDAY Price Action: Shares of Workday had declined by 12.04% to $239.32 at the time of publication on Friday. Read More: * Workday Could Soar With AI Strategy, Says Analyst WDAYWorkday Inc $240.17-11.7% Stock Score Locked: Edge Members Only Benzinga Rankings give you vital metrics on any stock - anytime. Unlock Rankings Edge Rankings Momentum 61.58 Growth 69.47 Quality Not Available Value 11.27 Price Trend Short Medium Long Overview Market News and Data brought to you by Benzinga APIs

Workday's Stock Just Dropped, but AI Adoption Is Growing -- Should You Buy the Dip? | The Motley Fool

While Workday (WDAY 0.78%) has established itself as a leading financial and human capital management software company, its stock has been stuck in neutral for years. In fact, after a 12.5% drop following the release of its fiscal 2026 first-quarter earnings report, Workday's stock now trades right around the same level it was at the end of 2020. Investors were disappointed with the software-as-a-service (SaaS) company's conservative guidance. Given the uncertainty about how new tariffs will impact the economy, it's not surprising that many companies are offering more cautious outlooks. However, Workday is leaning into the artificial intelligence (AI) trend, and in that context, the dip might be a good buying opportunity. While its shares tumbled, Workday's fiscal 2026 Q1 results actually exceeded analysts' consensus expectations on both the top and bottom lines. For the period, which ended April 31, revenue rose 12.6% year over year to $2.24 billion, with subscription revenue climbing 13.4% to $2.06 billion. Adjusted earnings per share (EPS) jumped 28% to $2.23. AI once again helped drive growth, as 25% of customer expansions included at least one AI product. New annual contract value across its AI products more than doubled year over year. Meanwhile, management noted that the company had just launched a new wave of AI agents that will help "amplify talent potential, reduce costs, accelerate decision-making, and mitigate risk." It also called out the growth of its ExtendPro solution, which lets customers build AI applications on its platform. While it serves more than 60% of the Fortune 500, the company highlighted the fact that 75% of its clients have fewer than 3,500 employees. As such, it is now looking to go after medium-sized enterprises with its new WorkdayGo solution, which can get these customers up and running on its platform within 30 to 60 days with a pre-configured deployment. Workday's 12-month subscription revenue backlog climbed by 15.6% to $7.63 billion, while its total subscription revenue backlog jumped 19% to $24.62 billion. Both of these metrics can be indicative of future revenue growth. The company continued to be a strong cash flow generator, producing operating cash flow of $457 million and free cash flow of $421 million in the quarter. It ended the quarter with $8 billion in cash and marketable securities and nearly $3 billion in debt. It also bought back 1.3 million shares in the quarter -- purchases mostly intended to offset the shareholder dilution that would otherwise be the result of its stock-based compensation distributions. Looking ahead, management maintained its full-year guidance for subscription revenue to grow by 14% to $8.8 billion. However, it did increase its adjusted operating margin forecast from 28% to 28.5%. The company's operating margin has been expanding nicely -- it was 25.9% last year. For its fiscal Q2, it expects subscription revenue to grow by 13.3% to $2.16 billion, with an adjusted operating margin of about 28%. Workforce said it has not seen any significant impact on its business and growth prospects due to tariffs or macroeconomic headwinds. Meanwhile, it is looking for subscription revenue growth to accelerate slightly in the second half. As Workday's revenue growth has slowed over the years, its stock price has stayed around the same levels while its price-to-sales (P/S) and price-to-earnings (P/E) multiples have shrunk. However, as the company has matured, it is now seeing a lot of operating leverage in its business, which is leading to faster earnings growth. Today, the stock trades at a forward P/S multiple of 6.7 and a forward P/E of 27, based on analysts' estimates for the current fiscal year. For a high-margin business with strong customer retention, a mid-teens revenue growth percentage, and even faster earnings growth, that valuation looks compelling. Workday's AI offerings appear to be gaining some solid traction, and if AI can help accelerate its growth in the back half of the year, the stock should have some solid upside from here. Its solid backlog growth, meanwhile, seems to support the potential for this revenue acceleration. The biggest risk would be if economic weakness leads to a disruption in enterprise software spending. As such, I'd look to start accumulating the stock on this dip.

JPMorgan cuts Workday stock price target to $295 By Investing.com

On Friday, JPMorgan (NYSE:JPM) analyst Mark Murphy adjusted the price target for Workday (NASDAQ:WDAY) shares, bringing it down to $295 from $310, while maintaining an Overweight rating on the stock. Currently trading at $238.01, the stock has experienced a significant 12.83% decline over the past week, according to InvestingPro data. The revision follows Workday's first-quarter results, which showed a mix of positive performance indicators and cautious investor sentiment due to certain financial metrics and macroeconomic factors. With analyst targets ranging from $250 to $340, and 27 analysts recently revising their earnings estimates upward, the stock shows mixed signals for investors. Workday reported a 12-month subscription backlog of $7.63 billion, a 15.6% year-over-year increase, and total revenue of $2.24 billion, marking a 12.6% year-over-year rise. Both figures slightly surpassed consensus estimates. The company maintains strong growth momentum, with InvestingPro data showing a robust 14.95% revenue growth over the last twelve months and a healthy gross profit margin of 75.66%. Subscription revenue also exceeded expectations, while the company's pre-forma operating margin of 30.2% and GAAP-free cash flow of $421 million were notably above analyst predictions. Despite the backdrop of heightened macroeconomic uncertainty, Workday has not observed a significant impact on its business growth prospects. However, the company is closely monitoring potential effects in specific areas, such as state and local government due to federal funding pressures and international business that might be affected by foreign companies reducing spending on U.S.-centric technology vendors. Workday also highlighted its strength across different regions and industries, with Technology & Media and Manufacturing verticals achieving over $1 billion in annual recurring revenue. Looking ahead, Workday's guidance for the second-quarter 12-month subscription backlog suggests a stable growth trajectory, with expectations slightly above consensus. The company maintained its fiscal year 2026 subscription revenue outlook of approximately $8.8 billion and a total revenue outlook of $9.5 billion, despite a slight foreign exchange headwind adjustment. For deeper insights into Workday's valuation and growth prospects, investors can access comprehensive analysis and additional ProTips through the detailed Pro Research Report available on InvestingPro. Workday continues to innovate in artificial intelligence (AI), with significant customer adoption of its AI products and partner contributions to new annual contract value. The company remains focused on expanding its full-suite offerings, penetrating the midmarket, and leveraging AI momentum. With a high customer satisfaction level and strong competitive positioning, Workday aims to solidify its leadership in the cloud-first human capital management (HCM) platform space and expand its financial and potentially supply chain management functionalities. In other recent news, Workday has reported its first-quarter earnings for fiscal year 2026, which revealed financial metrics surpassing consensus estimates. The company experienced a 13.4% increase in subscription revenue and an operating margin of 30.2%, both exceeding expectations. Calculated remaining performance obligations (cRPO) grew by 15.6%. Despite these positive results, Workday's stock saw a decline as the company's second-quarter guidance suggested a slightly conservative outlook. Analysts from Goldman Sachs (NYSE:GS) have raised their price target to $300, while DA Davidson increased theirs to $250, maintaining a Neutral rating. Stifel adjusted their target to $275, citing typical outperformance in revenue and margins, but expressed concerns about the pace of core business bookings. Meanwhile, Bernstein reduced their price target to $325, retaining an Outperform rating, and highlighted the need for further evidence of growth acceleration. These developments reflect a cautious yet optimistic stance from analysts regarding Workday's future performance, particularly in the context of artificial intelligence advancements.

Workday's SWOT analysis: cloud leader's stock faces growth hurdles By Investing.com

Workday, Inc. (NASDAQ:WDAY), a leading provider of enterprise cloud applications for finance and human resources with a market capitalization of $63.6 billion, continues to navigate a complex market landscape as it seeks to maintain its growth trajectory while improving profitability. Currently trading at $238.01, the company maintains a "GOOD" overall financial health score according to InvestingPro analysis. The company's recent performance and strategic initiatives have drawn mixed reactions from analysts, reflecting both optimism about its long-term potential and concerns over near-term growth challenges. Financial Performance Workday reported strong results for the first quarter of fiscal year 2026, surpassing consensus expectations on both top and bottom lines. The company's subscription revenue grew by 15% year-over-year, reaching $2.06 billion, while total revenue increased to $2.24 billion. With an impressive gross profit margin of 75.7% and annual revenue of $8.7 billion, the company demonstrates robust operational efficiency. Non-GAAP operating margins exceeded 30%, demonstrating the company's commitment to improving profitability. Want deeper insights into WDAY's financial metrics? InvestingPro subscribers have access to over 30 additional financial metrics and 12+ exclusive ProTips. Carl Eschenbach, Workday's CEO, expressed confidence in the company's performance, stating, "We had a solid start to the year, delivering strong financial results while continuing to innovate and expand our market presence." Strategic Initiatives Workday has been actively pursuing several strategic initiatives to drive growth and maintain its competitive edge. The company has placed a significant emphasis on artificial intelligence (AI) innovation, introducing seven new AI agents and reporting strong performance in full suite deals, particularly in the mid-market segment. The launch of Workday Go, a new offering designed for faster implementation and better pricing in the mid-market segment, underscores the company's focus on expanding its addressable market. Additionally, Workday has been leveraging its partner ecosystem, with over 20% of new annual contract value (NNACV) coming from partner-sourced pipeline. In a move to streamline operations and improve efficiency, Workday announced a workforce reduction of approximately 8.5% in early 2025. This restructuring effort is expected to support the company's margin expansion goals and reinforce investor confidence in its ability to meet long-term profitability targets. Market Outlook The enterprise cloud applications market continues to present significant opportunities for Workday, with analysts estimating a total addressable market of over $140 billion. With only 20-25% of this market having transitioned to the cloud, Workday is well-positioned to capitalize on the ongoing digital transformation trends across industries. The company faces intense competition from established ERP providers and other cloud-native competitors. According to InvestingPro analysis, Workday holds more cash than debt on its balance sheet and maintains a healthy current ratio of 2.07, providing financial flexibility to navigate competitive pressures. Analysts note that while Workday maintains a strong position in human capital management (HCM) solutions, it may face challenges in expanding its footprint in financial management applications. Bear Case Will Workday's decelerating growth rates impact its market position? Workday has experienced a deceleration in its subscription revenue growth rates over the past several quarters, raising concerns among some analysts about the company's ability to maintain its market leadership. The company's guidance for fiscal year 2026 subscription revenue growth of around 14% represents a continued moderation from previous years' performance. Analysts at Piper Sandler expressed concern about this trend, noting that "tepid guidance with cRPO growth expected to decline for the fifth consecutive quarter to 14% erodes confidence in growth recovery next year." This deceleration could potentially impact Workday's valuation multiples and investor sentiment if it persists. How will macroeconomic uncertainties affect Workday's customer acquisition and retention? The global economic landscape remains uncertain, with potential headwinds that could impact enterprise software spending. Analysts at Citi Research highlighted this risk, stating that "potential macroeconomic challenges could lead to budget shifts away from Workday's core offerings." Additionally, a slowdown in digital transformation projects and HR module adoption could further impact Workday's growth prospects. The company's exposure to various sectors, including government and higher education, may provide some diversification but also introduces sector-specific risks. Bull Case How will Workday's AI initiatives drive future growth and customer value? Workday's strong focus on AI innovation presents a significant opportunity for the company to differentiate its offerings and drive customer value. The introduction of new AI agents and the development of the Workday Agent System of Record demonstrate the company's commitment to leveraging AI technologies. Analysts at JMP Securities view this positively, noting that Workday is "well-positioned to leverage AI with over 70M+ users under contract." The potential for AI-driven product enhancements and upsell opportunities could help reinvigorate growth rates and strengthen Workday's competitive position. Can Workday's margin expansion drive shareholder value despite moderating growth? While growth rates have moderated, Workday has demonstrated a strong commitment to improving profitability. The company's non-GAAP operating margins have exceeded 30%, and management has set a long-term target of 30% operating margins by fiscal year 2027. This focus on margin expansion could drive significant shareholder value, even in the face of slower top-line growth. Analysts at BMO Capital Markets noted that "increased operating margin guidance reflects potential for improved profitability," which could support the stock's valuation and attract investors seeking a balance of growth and profitability. Weaknesses: Opportunities: Threats: This analysis is based on information available up to May 25, 2025, and reflects the diverse perspectives of various financial analysts on Workday's stock performance and future prospects. With 27 analysts recently revising their earnings estimates upward and a consensus recommendation of 1.81 (Buy), the stock presents an interesting opportunity for investors. Discover the full potential of your investment research with InvestingPro. Access comprehensive Pro Research Reports, real-time Fair Value estimates, and exclusive financial insights for over 1,400 US stocks, including WDAY. InvestingPro: Smarter Decisions, Better Returns Gain an edge in your investment decisions with InvestingPro's in-depth analysis and exclusive insights on WDAY. Our Pro platform offers fair value estimates, performance predictions, and risk assessments, along with additional tips and expert analysis. Explore WDAY's full potential at InvestingPro. Should you invest in WDAY right now? Consider this first: Investing.com's ProPicks, an AI-driven service trusted by over 130,000 paying members globally, provides easy-to-follow model portfolios designed for wealth accumulation. Curious if WDAY is one of these AI-selected gems? Check out our ProPicks platform to find out and take your investment strategy to the next level. To evaluate WDAY further, use InvestingPro's Fair Value tool for a comprehensive valuation based on various factors. You can also see if WDAY appears on our undervalued or overvalued stock lists. These tools provide a clearer picture of investment opportunities, enabling more informed decisions about where to allocate your funds.

RBC Capital maintains Workday stock Outperform with $340 target By Investing.com

Saturday, RBC Capital Markets reiterated its Outperform rating on Workday shares (NASDAQ:WDAY), maintaining a price target of $340.00. The firm's analysis followed Workday's first-quarter financial results, which led to a roughly 7% decline in the company's stock price in after-hours trading. According to InvestingPro data, the stock has fallen nearly 13% in the past week, though analysts maintain a bullish consensus with price targets ranging from $250 to $340. Despite a modest beat in Q1 earnings, Workday only reiterated its subscription revenue guidance, which did not meet some investor expectations. The slight outperformance in the quarter was consistent with recent trends and was attributed to services and a modest overachievement in subscription revenue. Workday's calculated remaining performance obligations (cRPO) exceeded Wall Street estimates for the second quarter in a row, indicating potential signs of stabilization within the company's business. In addition to the financial performance, Workday's management provided updated guidance on the company's operating margin for fiscal year 2026. They increased the operating margin outlook by 50 basis points, now expecting a year-over-year expansion of 260 basis points. The company's progress in artificial intelligence (AI) was also highlighted as a positive development. RBC Capital Markets noted early adoption trends in AI and the momentum Workday is building with its partner network, suggesting a favorable outlook for the company's innovative efforts. In other recent news, Workday has reported first-quarter fiscal 2026 earnings that exceeded analysts' expectations, with an earnings per share (EPS) of $2.23 against a forecast of $2.01. The company also surpassed revenue predictions, reporting $2.24 billion compared to the anticipated $2.22 billion, marking a 13% increase year-over-year. Despite these positive results, Workday's stock saw a decline in after-hours trading. Analysts at TD Cowen have adjusted their outlook on Workday, lowering the stock price target to $310 from $320 while maintaining a Buy rating, citing cautious spending and conservative forecasts. Meanwhile, JMP has maintained its Market Outperform rating with a steady price target of $315, reflecting confidence in Workday's long-term prospects. The company's subscription revenue grew by 13% to $2.06 billion, although this was a slowdown from the previous quarter. Workday continues to focus on its growth strategies, including advancements in artificial intelligence and expansion in international markets.