Workday stock soars 10% as AI push drives earnings beat, but analysts warn of pricing pressures

Strong demand for agentic AI offerings helps Workday beat expectations and boost its stock price - SiliconANGLE

Strong demand for agentic AI offerings helps Workday beat expectations and boost its stock price Shares of the financial services and human resources software company Workday Inc. rose more than 10% in late trading after it reported first-quarter earnings and revenue that came in higher than expected. It also bumped up its full-year margin forecast, increasing optimism over its future profitability. The company reported earnings before certain costs such as stock compensation of $2.66 per share, easily beating Wall Street's target of $2.51 per share. Revenue for the period rose 13% to $2.54 billion, edging past the consensus estimate of $2.52 billion. Subscription revenue, which is a key metric for the company, increased 14% to $2.35 billion, with 40% of that growth coming from net new business, said Chief Commercial Officer Rob Enslin. Those results helped Workday to drive up its bottom line, with net income at the end of the quarter coming to $222 million, compared to just $68 million in the year-ago period. In terms of guidance, the company said it's looking for subscription revenue of $2.46 billion at the midpoint of its range, and called for a 30% adjusted operating margin in the second quarter. Wall Street had been looking for slightly lower subscription sales of $2.45 billion and the same 30% margin. What really encouraged investors was the longer-term margin forecast. Workday said it's now projecting a 30.5% adjusted operating margin for the full year, up from 30% in February, with revenue growth still pegged at between 12% and 13%. The results and guidance helped earn a reprieve for Workday, whose stock has endured its worst year since the company first went public in 2012. This year, investors have been fretting about the rise of generative artificial intelligence models and the prospect of them reducing growth opportunities for software companies. Even with today's after-hours gains, Workday's stock is still down 43% in the year to date. Meanwhile, the broader S&P 500 has gained about 9% this year. Workday's fortunes weren't helped by the disruption in its leadership ranks. Three months ago, the company revealed that its then-Chief Executive Carl Eschenbach would be stepping down from the role. He was replaced by founder and former CEO Aneel Bhusri (pictured), who resumed his old job to lead the company through a tough period. One of the ways Workday has been trying to stem fears of AI disruption is by investing in its own AI innovations, and in March it announced the availability of a new conversational "agentic AI" layer called Sana, which is aimed at executives, managers and other employees. With Sana's agents, they can retrieve information, initiate tasks, review data and automate some decision making. . "Our core business is strong, our AI strategy is working, and we're moving with the speed and focus required to lead," said Bhusri in a statement. He added that the number of clients using its AI agents has more than doubled from the previous quarter, with over 4,000 using at least one. In answer to a question about the impact of AI, Workday's President of Product and Technology Gerrit Kazmaier told analysts on a conference call that annualized revenue from its agentic offering is fast approaching $500 million. "The 150th feature in HR or finance is not going to move the needle for our business," he said. "The next agentic application will." Because Workday faces competition from rivals such as Salesforce Inc. and ServiceNow Inc. for enterprise's agentic spending, Workday is going to have to "both innovate and differentiate why its AI delivers comparatively more value," said Valoir analyst Rebecca Wettemann. "To ward off saaspocalypse rumors, Workday needs to show the market that its AI is gaining momentum," the analyst said, using a term that reflects the feeling of impending doom that's affected software-as-a-service companies this year. She explained that Workday's customers have a lot of alternatives when it comes to agentic systems, and explained that even if they have Workday's platforms as the application layer, that doesn't guarantee they will also use its agentic offerings. According to Wettemann, one of Workday's main problems is the growing competition it faces. It's one of the more expensive enterprise software platforms, both in terms of its deployment and support costs, she said. "It's also dependent on a per-user pricing model, which means that it's less insulated from a SaaSpocalypse than some of its peers," she added. Unlike many of its peers in the software industry, Workday has not yet announced any significant layoffs so far this year, and Bhusri had some reassuring news for the company's employees when he was asked about this on the call. He insisted that he wants to keep the company's headcount as close to flat as possible during the 2027 fiscal year, even as its employees increase their usage of agentic tools and services from other companies.

Workday Serves 65% Of The Fortune 500, But Analyst Warns AI Could Compress Its Per-Seat Pricing Model - W

BofA Securities reinstated coverage on Workday Inc. (NASDAQ:WDAY) on Wednesday, issuing a neutral rating and a $140 price forecast. Entrenchment Limits Displacement Risk Analyst Tal Liani highlighted that Workday remains deeply embedded as a mission-critical system of record for Human Capital Management (HCM) and payroll across major enterprises. BofA Global Research pointed out that the company serves approximately 65% of the Fortune 500. This structural integration yields an exceptional 97% gross retention rate, rendering the risk of outright displacement by AI-native software highly unlikely. AI Threatens Seat-Based Monetization Despite this core resilience, BofA warned that AI introduces a credible risk of value compression. Because Workday primarily prices its software on a per-seat, per-employee basis, efficiency initiatives that flatten or reduce corporate headcounts present a direct headwind. "AI decouples the value of the solution from the number of seats," Liani noted, adding that shifting toward agentic or hybrid pricing models will take time to offset traditional seat compression. Structural Growth Deceleration The analyst report emphasized that Workday's top-line expansion had already been slowing prior to recent AI disruptions, decelerating from roughly 30% down to the mid-to-low teens. BofA models total revenue growth of 11.5% for fiscal year 2027 and 11.3% for fiscal year 2028. Balanced Valuation Caps Upside The $140 price forecast implies a 9 times calendar year 2027 enterprise value-to-free cash flow (EV/FCF) multiple. This represents a discount to the broader software peer group average of 10.1x, reflecting Workday's maturing profile. Technical Analysis WDAY is hovering right around its short-term averages, trading 0.3% above the 20-day SMA ($124.51) and 0.5% below the 50-day SMA ($125.49). The longer-term picture is still heavy: the stock is trading 14.4% below its 100-day SMA ($145.97) and 33.3% below its 200-day SMA ($187.14), reinforcing that rallies remain counter-trend until those levels start getting reclaimed. WDAY Stock Price Activity: Workday shares were up 0.48% at $124.61 at the time of publication on Wednesday, according to Benzinga Pro data. Photo: Shutterstock This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors. Market News and Data brought to you by Benzinga APIs To add Benzinga News as your preferred source on Google, click here.

Why Is Workday Stock Soaring Friday? - Workday (NASDAQ:WDAY)

AI Push Helps Workday Beat Estimates Workday reported first-quarter earnings of $2.66 per share, beating analyst estimates of $2.51, according to Benzinga Pro data. Revenue rose to $2.54 billion, ahead of the consensus estimate of $2.52 billion. Adjusted operating income increased to $809 million, resulting in a 31.8% operating margin. Operating cash flow climbed 52% year over year to $696 million, while free cash flow increased 46% to $616 million. AI Adoption Accelerates Across Enterprise Workflows The company said AI adoption continued to gain momentum during the quarter as customers increasingly deployed automation tools across enterprise workflows. Workday introduced several AI-powered products, including a travel agent designed to combine booking, expense management and compliance workflows; an IT service management agent called Sana for onboarding and service requests; and a deployment agent intended to reduce implementation effort by about 30%, with a long-term goal of cutting workloads by as much as 50%. The company said AI contributed more than 25% of new annual contract value generated from customer expansions. AI-related deals were also more than 50% larger on average. Workday processed 14 million recruiting workflows during the quarter, up 44% from a year earlier. Contract analysis volume exceeded 1.1 million, increasing 53% sequentially. More than 4,000 customers are now using Workday AI agents, with integrations expanding across Microsoft Teams, Microsoft Copilot and Google Gemini. Subscription Revenue And Backlog Growth Remain Strong Subscription revenue increased 14% year over year to $2.354 billion, while professional services revenue totaled $188 million. Workday's 12-month subscription revenue backlog rose 15.5% from the prior year to $8.81 billion. The company said it delivered its strongest first-quarter new annual contract value growth in five years, supported by stable demand and increased AI adoption. Workday reaffirmed fiscal 2027 subscription revenue guidance of $9.925 billion to $9.950 billion, representing expected growth of 12% to 13%. The company also raised its fiscal 2027 non-GAAP operating margin outlook to 30.5%, citing operational efficiency gains and growing AI leverage. Workday Stock Jumps After Earnings Beat WDAY Price Action: Workday shares were up 9.40% at $133.30 during premarket trading on Friday, according to Benzinga Pro data. Photo via Shutterstock Market News and Data brought to you by Benzinga APIs To add Benzinga News as your preferred source on Google, click here.