Workday's Q2 Earnings Beat Estimates, but AI Disruption Fears Linger

Workday beats estimates but CEO warns of challenges in education and government

CEO of Workday Carl M. Eschenbach and Ana Eschenbach attend the Allen and Company Sun Valley Media and Technology Conference at The Sun Valley Resort in Sun Valley, Idaho, U.S., July 10, 2025. Workday reported an earnings beat on Thursday, but issued guidance that was inline with estimates and warned of pressure in some areas. The shares slipped in extended trading. Here's how the company did relative to LSEG consensus: Revenue increased 13% from a year earlier in the fiscal second quarter, which ended on July 31, according to a statement. The company's net income rose to $228 million, or 84 cents per share, from $132 million, or 49 cents per share, in the same quarter last year. For the current quarter, Workday called for $2.24 billion in subscription revenue and $180 million in professional services, which implies $2.42 billion in total revenue. Analysts polled by LSEG had expected a total of $2.42 billion. The company sees an adjusted operating margin of 28.0%, just below the 28.1% consensus among analysts surveyed by StreetAccount. Workday, which provides software for finance and human resources departments, now sees $8.82 billion in subscription revenue for the full year, and $700 million in professional services revenue, implying a total of $9.52 billion. The LSEG consensus was $9.51 billion. The part of Workday that works with state and local governments faced challenges during the quarter, CEO Carl Eschenbach said on the earnings call. "I think we'll continue to see that as people are trying to figure out what the funding slowdown is going to look like, all the way to the state level," he said. Meanwhile, higher education in the U.S. is facing pressure from President Donald Trump, who signed an executive order in March to shut down the Department of Education. "If it's a higher ed university that includes a healthcare system, they too are getting a little pullback in funding," Eschenbach said. "So it's something we're keeping our eye on." Also on Thursday Workday said it's acquiring Paradox, a company with conversational artificial intelligence software for recruiting, for undisclosed terms. During the quarter, Workday announced AI agents for extracting accounting details from documents and reporting absent days. As of Thursday's market close, Workday shares were down about 12% this year, while the Nasdaq is up about 9%.

Workday's stock falls on disappointing guidance and persistent concerns over AI threat - SiliconANGLE

Workday's stock falls on disappointing guidance and persistent concerns over AI threat Workday Inc.'s stock was under pressure in late trading today after the company issued guidance for the current quarter in-line with expectations, eroding whatever optimism was generated by its solid second-quarter earnings results. The company reported a profit before certain costs such as stock compensation of $2.21 per share, easing past Wall Street's target of $2.11 per share, while revenue for the period was up 13% from a year earlier, to $2.35 billion, just squeaking past the analyst's forecast of $2.34 billion. The stronger-than-expected performance meant Workday's net income was higher, rising to $228 million, up from $132 million in the same period one year ago. The company's adjusted operating profit margin also improved to 29%, up from 24.8% in the year-ago period and well above the Street's expectations. Workday Chief Executive Carl Eschenbach (pictured) said the company's solid quarter was driven by a combination of artificial intelligence and platform innovation and international momentum. "Customers are choosing Workday because we help them unlock value today and prepare for what's next," he said. "Whether that's navigating AI transformation, streamlining operations, or creating more meaningful work for their people." All well and good so far, but then Workday set off alarm bells when it issued its guidance for the current quarter. Chief Financial Officer Zane Rowe said the company is calling for $2.24 billion in subscription revenue and $180 million in professional services, implying a total of $2.42 billion. That's in line with Wall Street's forecast. Moreover, Rowe said the company anticipates an adjusted operating margin of exactly 28%, slightly below the Street's call for 28.1%. Investors were not too happy, and Workday's stock promptly fell more than 4% after-hours. Workday, which sells a comprehensive software platform for human resources and financial management, did at least increase its full-year forecast. It said it's now targeting total revenue of $9.52 billion at the midpoint of its guidance range, representing growth of 14.2% and ahead of an earlier forecast of $9.4 billion. In a conference call with analysts, Eschenbach said that the company is facing pressure in the U.S. government and education sectors due to concerns about reduced budgets, and admitted it might continue for a while. "I think we'll continue to see that as people are trying to figure out what the funding slowdown is going to look like, all the way to the state level," he said. In addition, the higher education sector has also been feeling pressure ever since President Donald Trump signed an executive order in March to shut down the Department of Education. "If it's a higher ed university that includes a healthcare system, they too are getting a little pullback in funding," Eschenbach said. "So it's something we're keeping our eye on." An even bigger concern for some investors is the rapid growth of the AI industry, with many analysts predicting that sales of cloud software could suffer the same kind of devastating blow that subscription services once dealt to packaged software. Workday has responded by trying to develop its own AI tools. Eschenbach was dismissive of such concerns. "I think this concern about AI disruption and the potential negative impacts for seat-based models are completely overblown," he insisted. "We hear that AI is eating the software world, and unless something's changed from yesterday, AI is software, and we're leaning heavily into it." Workday has been focused on developing a range of AI agents, which are software systems that leverage large language models to try and automate complicated business processes and tasks from a simple, plain language command. Workday's AI agents are focused on human resources teams, and a supervisor might instruct it to find all employees who have recently asked for a pay rise and enter them into a spreadsheet, then help them to judge which requests have merit. In June, Workday released its latest AI agents, which are focused on extracting accounting details from documents and creating lists of absent days. One week ago, it acquired a company called Flowise, which has developed a visual, drag-and-drop builder for creating customized AI agents, supporting the entire development lifecycle, from prototyping and debugging to analytics and deployment. Today, Workday announced a second acquisition, saying it's buying another AI startup called Paradox Inc., which has developed a conversational chatbot that enhances the hiring process by simplifying job applications and improving experiences for candidates. Both startup's tools will be integrated into Workday's software. The after-hours movement means Workday's stock is down about 12% in the year to date, trailing the broader Nasdaq index, which has gained 9% this year.

Workday Subscription Revenue Jumps 14%

Workday (WDAY -0.07%), a leading provider of enterprise cloud applications for finance and human resources, released its fiscal second quarter results on August 21, 2025. total revenue (GAAP) of $2.348 billion fell slightly below the $2.42274 billion estimated by analysts, even as earnings per share (non-GAAP) of $2.21 beat consensus of $2.17. Management raised full-year subscription revenue and non-GAAP operating margin guidance, amid sustained investment in artificial intelligence and global expansion. Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2026 earnings report. Business Overview and Focus Workday delivers cloud software that helps organizations manage financial and human resources operations. Its primary offerings include human capital management, financial management, and analytics -- all run from a single platform in the cloud. The company's recurring subscription model provides most of its revenue. Key to its business is integrating artificial intelligence into its applications to improve automation and efficiency. Customer support, satisfaction, and a broad partner ecosystem also underpin its business model. Quarterly Highlights: Growth, Margins, and Operations The quarter saw notable growth in recurring subscription revenues, which reached $2.17 billion, up 14.0%. This continues the company's pattern of outpacing overall revenue growth with its subscription business. Management had previously guided for about $2.16 billion in subscription revenue, so the delivered non-GAAP EPS slightly exceeded their expectations. Total revenue (GAAP) reached $2.34 billion, a 12.6% increase year over year, though this was a touch below analyst consensus. Non-GAAP operating margin, which excludes items such as share-based compensation, grew to 29.0%, a jump from 24.9% the prior year. This reading was above Workday's internal target for the period. The gap between revenue growth (12.6% year-over-year) and the much faster growth in non-GAAP diluted earnings per share (26.3% year-over-year) signals improved operational efficiency. Free cash flow (non-GAAP) was $588 million, compared to $516 million in the same period last year. This weaker trend in professional services is an area for continued monitoring. Meanwhile, backlog metrics improved. The 12-month subscription revenue backlog grew 16.4% to $7.91 billion, suggesting resilient customer demand and visibility into future billings. Artificial intelligence remains a primary focus. During the quarter, Workday launched new AI developer tools and announced plans to acquire Paradox, a vendor focused on AI-powered recruiting automation, alongside completing the acquisition of Flowise, a low code AI agent builder. These moves reflect increased capital allocation toward AI-driven offerings. The company also highlighted strong enterprise wins across industries and geographies, and its customer base now covers more than 75 million users. Workday expanded its partner and developer ecosystem through the introduction of the Workday Agent Partner Network. This move anchors its strategy to promote third-party developers building on its platform and broadening reach via strategic alliances. The company unveiled new government-focused offerings, targeting regulated public sector clients with its cloud software. Recognition in leading industry benchmark reports -- including being named a Leader in Gartner's Magic Quadrant for ERP (enterprise resource planning) in U.S. local government -- supported its market positioning. At the same time, legal and regulatory risk related to artificial intelligence discrimination claims remain a known risk area, noted in the company's forward-looking disclosure and flagged by outside analysts. Looking Ahead: Guidance and Key Watchpoints Management raised its guidance for the current fiscal year. The full-year subscription revenue target is now $8.815 billion, representing a 14.2% increase, up slightly from earlier projections. The non-GAAP operating margin target for the full year went up to 29.0%, half a point above the previous quarter's expectation. Guidance for the next quarter calls for subscription revenue of $2.235 billion (14.1% growth) and a non-GAAP operating margin of 28.0%, indicating ongoing confidence but at slightly lower margin than just achieved. Management expects capital allocation to remain focused on buybacks and strategic acquisitions, citing a strong cash and securities balance of $8.19 billion. No dividend is declared. WDAY does not currently pay a dividend. Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

Workday: Are the AI Disruption Fears Real, or Is It Time to Buy the Stock on the Dip? | The Motley Fool

The market's concerns that artificial intelligence poses a threat to Workday's business model have taken a toll on its stock price. Workday (WDAY 0.96%) share prices dipped last week despite the software-as-a-service (SaaS) company reporting results for its fiscal 2026 second quarter that topped analysts' consensus estimates. The stock is down by around 14% this year as of this writing. Workday provides financial and human capital management software, and like many broad-based SaaS companies, its stock has struggled as investors try to predict how artificial intelligence (AI) will change the enterprise software landscape. The reason for this is that AI tools can start to automate tasks that previously had to be performed by employees, which can impact companies like Workday that have seat-based pricing models. So after a slide that began in early 2024, is Workday stock now a buying opportunity, or would investors be better advised to stay on the sidelines? As AI changes the software landscape, Workday is leaning into the technology. In the fiscal quarter, which ended on July 31, more than 75% of its sales to new customers included an AI solution, while 30% of sales to existing customers did. This resulted in its new net annual contract value from AI products more than doubling year over year in the quarter. Workday's primary AI platform is Workday Illuminate, which management boasts gives customers the "largest and cleanest" human resource and finance database in the world. From there, the platform provides AI agents that can help with HR, finance, and legal tasks. The company also offers several AI-specific products, such as Talent Optimization, Recruiting Agent, and Contract Intelligence Agent. To help continue its push into AI, Workday also last week announced its agreement to acquire Paradox. The AI company's solution is meant to make the hiring process easier. Turning to its results, Workday's Q2 revenue rose nearly 13% year over year to $2.35 billion as subscription revenue climbed 14% to $2.17 billion. Adjusted earnings per share (EPS) jumped 26% to $2.21. That was ahead of consensus estimates for revenue of $2.34 billion and EPS of $2.11, according to analysts polled by LSEG. The company's 12-month subscription revenue backlog jumped by 16% to $7.91 billion, while its total subscription revenue backlog rose by nearly 18% to $25.37 billion. Workday said it was feeling some pressure in its state and local government and higher education (SLED) business segment. It noted that while many colleges have lost some of their federal funding, the company did win a big competitive deal in the quarter with the University of Virginia. Meanwhile, it said everything else has been pretty consistent with the new normal. Another area management was watching -- the international market -- rebounded with a strong quarter. Workday saw strong growth in Europe and secured some nice wins in the Asia-Pacific region. Workday ended the quarter with $8.19 billion in cash and marketable securities on its books and $3 billion in debt after repurchasing $299 million worth of shares in the quarter. It generated operating cash flow of $616 million and free cash flow of $588 million. Looking ahead, Workday management raised its fiscal 2026 guidance slightly -- it now expects revenue to grow by 13% to about $9.515 billion and subscription revenue to grow by about 14% to $8.815 billion. The prior outlook was for revenue of $9.5 billion and subscription revenue of $8.8 billion. However, these new figures include contributions from the Paradox acquisition; without that deal, its guidance was basically unchanged. On the earnings call, Workday CEO Carl Eschenbach described the market's worries that AI would disrupt seat-based SaaS models as "completely overblown." He noted that while its customer headcount growth has moderated, it is still growing. He also said that the slower growth pace was much more a result of companies having previously over-hired than a result of the impact of AI. Given that it was widely reported that many major tech companies were hoarding talent a few years back, Eschenbach's comments make sense. Meanwhile, if there are any changes in the number of workers that companies employ, SaaS companies will have the option to transition to consumption or outcome-based pricing models. As for Workday, AI is currently helping it achieve solid sales growth. It may no longer be clocking the 20% to 30% year-over-year revenue growth it did in the past, but it's starting to see strong operating leverage with robust profitability growth. The stock now trades at a forward price-to-sales (P/S) ratio of 6.2 and a forward price-to-earnings (P/E) ratio of 25, based on analysts' fiscal 2026 estimates. Given its projected mid-teens percentage revenue growth and strong earnings growth, that's an attractive valuation in my view. Right now, Workday looks like a solid GARP-oriented (growth at a reasonable price) option for investors. As such, I think investors can buy the dip.

Workday Q2 Revenue Jumps on AI Growth | The Motley Fool

Workday(WDAY -0.07%) reported its fiscal Q2 2026 results (period ended July 31, 2025) on Aug. 21, 2025, delivering 14% year-over-year subscription revenue growth to $2.17 billion with a non-GAAP operating margin of 29% and raised full-year fiscal 2026 guidance across key metrics. The quarter featured strong AI product adoption, accelerated international momentum, and two strategic acquisitions aimed at broadening the platform's AI and developer capabilities. The following analysis distills Workday's progress on artificial intelligence, public sector expansion, and partner ecosystem impact, drawing out the long-term investment implications. Net new annual contract value (ACV) from AI products more than doubled year over year, and over 75% of net new deals included at least one AI solution, led by Workday Illuminate and expanding agent-based offerings. With more than 75 million users under contract, Workday's AI attach rate among both new and existing customers demonstrates strong adoption of its AI solutions, and it processed a trillion transactions last year. "More than 30% of our customer-based deals and more than 75% of our net new deals included one or more of our AI products, such as talent optimization, recruiting agent, talent mobility agent, contract intelligence agent powered by Eversource, and ExtendPro. And net new ACV from our AI products once again more than doubled year over year." -- Carl Eschenbach, CEO Workday's seat-based and platform business models are underscored as defensible against potential disruption from standalone generative AI startups. With the debut of Workday Government, the company created a wholly owned U.S. subsidiary and began building dedicated cloud infrastructure with higher security standards, directly responding to federal customer requirements. Workday saw the first state-level go-live on Workday financial management (Rhode Island), as well as a competitive win encompassing the University of Virginia's health system, signaling success both in agency penetration and cross-vertical state/higher education reach. "We launched Workday Government in the quarter because we wanted to set up a separate subsidiary as part of Workday to show the government how focused we are on their sector in our opportunity. And I will tell you in spending quite a bit of time in DC over the last few months, it has been very well received. At the same time, to answer your question, we are building a very specific cloud environment for them with higher levels of security. That they are seeking from us, and we're working closely with them." -- Carl Eschenbach, CEO This dedicated government entity positions Workday to pursue opportunities in the federal and state governments' multi-year digital modernization and AI adoption cycle. Workday's channel partners contributed over 20% of net new ACV for the second consecutive quarter, coinciding with a doubling of live apps on Workday Marketplace since the start of the fiscal year and a year-over-year doubling of developer community size. New partnerships, including AWS, Google Cloud, and PwC, were signed into the AI agent partner network. Enhancements to Extend and the acquisition of Flowwise, a low-code agent builder, reflect expansion into open-source and customizable AI workflows. "For the second quarter in a row, more than 20% of our net new ACV signed in the quarter was sourced from partners. Strategic partnerships are helping us generate new revenue streams and enhance employee services. In the quarter, we expanded our partnership with DailyPay, giving employees easier access to earned wages before payday. " -- Carl Eschenbach, CEO Growing partner and developer ecosystem contributions diversify Workday's growth vectors beyond core HCM and financial applications and accelerate time-to-value for customers. Management increased full-year fiscal 2026 subscription revenue guidance to $8.815 billion (up 14% year over year) and raised the non-GAAP operating margin outlook to 29%, with free cash flow now projected at $2.65 billion. Fiscal Q3 2026 subscription revenue is guided to $2.235 billion (up 14% year over year), current remaining performance obligations (CRPO) are expected to rise 15%-16% in fiscal Q3 2026, and the Paradox acquisition is anticipated to close in fiscal Q3 2026, but is not included in CRPO guidance. Detailed AI product metrics, as well as medium-term financial targets, will be provided at Workday's Financial Analyst Day on Sept. 16, 2025.