Workday
stock was falling after the company posted better-than-expected earnings for its fiscal fourth quarter ended Jan. 31, and repeated its previous financial outlook for the January 2025 fiscal year.
Workday, which sells financial and HR software to large enterprises, reported quarterly revenue of $1.922 billion, slightly above the company’s forecast for $1.91 billion, and the Wall Street consensus estimate as tracked by FactSet of $1.917 billion. Subscription revenue was $1.76 billion, up 18% from a year ago, in line with guidance and estimates.
Despite the solid quarter, shares of Workday were down 4.7% in premarket trading Tuesday.
On an adjusted basis, Workday earned $1.57 a share, a dime better than Wall Street estimates. Non-GAAP operating margin was 24%, slightly ahead of the company’s target for 23.5%.
January quarter free cash flow was $948 million, nicely ahead of the consensus estimate for $745 million. Workday noted that the quarter benefited from about $100 million in customer payments that arrived sooner than had been expected. In fiscal 2024, the company bought back $423 million of stock.
Citi analyst Steven Enders pointed out in a brief research note on the quarter that billings in the quarter of $2.79 billion, while up 16.2% from a year ago, were slightly below the Street’s consensus of $2.80 billion.
Evercore ISI analyst Kirk Materne wrote in a research note that he is ”not surprised” to see a dip in the stock given ”a fairly small beat,” but that he did not see ”any major thesis breakers” in the results.
For the full fiscal year ended January 2024, revenue was $7.26 billion, up 17% and a smidgen ahead of guidance for $7.25 billion. Full year adjusted profits were $5.84 a share, edging the consensus estimate for $5.75.
Workday reiterated its fiscal year 2025 guidance for subscription revenue of $7.725 billion to $7.775 billion, up 17% to 18%, clarifying that it now sees full year non-GAAP operating margin of 24.5%; Workday previous had said that the figure would be above the fiscal 2024 level.
For the April quarter, Workday sees 18% subscription growth, consistent with Wall Street estimates. The company noted that the three-month period will benefit from the inclusion of leap day, adding about one percentage point of growth.
Workday also announced an agreement to acquire HiredScore, a New York-based start-up that sells “AI-powered” talent software. Terms of the deal were not disclosed.
Workday Chief Financial Officer Zane Rowe said in an interview with Barron’s that the company “feels good about the fourth quarter,” with solid growth in subscription revenue. “It was a very clean print, and we are excited about the progress we are making,” he said.
Rowe noted that the company has been gradually integrating artificial-intelligence capability into its software, but that it is “still in the early days” on monetization of its AI investments. He says customers will expect some elements of AI across the product portfolio, which should benefit Workday in terms of “better win rates and customer satisfaction,” but that the company will eventually charge extra for some modules that are more AI-intensive to be rolled out in the months ahead.
Workday shares have risen 11 this year, and 66% over the last 12 months.
Write to Eric J. Savitz at eric.savitz@barrons.com
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