Workday Declines 8% Despite Posting Strong Q3 Results


Cloud-based financial management and human capital management software vendor Workday, Inc. (WDAY) has reported better-than-expected results for the third quarter ended October 31, 2021. The strong results were on the back of robust growth witnessed in revenues.

However, shares of the company declined 8% to close at $275.10 in Thursday’s extended trading session.

Revenue & Earnings

Workday reported quarterly revenues of $1.33 billion, up 20% year-over-year. The figure topped the consensus estimate of $1.31 billion. Subscription services revenue (up 21% year-over-year) and professional services revenue (up 13.3% year-over-year) drove the overall growth in revenues.

The company reported quarterly earnings of $1.10 per share, up 28% from the same quarter last year. Moreover, the figure surpassed the consensus estimate of $0.86 per share.

Other Operating Metrics

In other operating metrics, while the company’s 24-month subscription revenue backlog grew 19.7% from the prior year to $7.12 billion, the total subscription revenue backlog stood at $10.97 billion, up 23.7% year-over-year.

Outlook

For the fourth quarter, the company expects revenue to be in the range of $1.216 to $1.218 billion. The consensus estimate for the same is pegged at $1.36 billion.

Similarly, for Fiscal Year 2022, the company forecasts revenues to hover between $4.533 billion and $4.535 billion. The consensus estimate for the same stands at $5.11 billion.

Management Commentary

The Co-CEO of Workday, Aneel Bhusri, said, “We delivered another strong quarter as we continue to expand our addressable market through our diverse product portfolio and multiple go-to-market levers, helping to support our sustained growth. I continue to remain optimistic about the great opportunity in front of us, supported by our employees’ incredible efforts, our relentless focus on innovation, and our growing customer community – which consists of some of the world’s largest organizations that are making long-term investments in their future with Workday.”

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Price Target

On November 18, BMO Capital analyst Keith Bachman reiterated a Hold rating on the stock. The analyst, however, raised the price target from $295 to $355, which implies upside potential of 18.7% from current levels.

According to the analyst, the company’s product pipeline gives it revenue growth visibility. Further, the measures to expand its portfolio and improve market capabilities bode well for the company.

Consensus among analysts is a Strong Buy based on 26 Buys and 1 Hold. The average Workday price target of $325.20 implies upside potential of 8.7% from current levels.

Smart Score

Workday scores a 9 out of 10 from TipRanks’ Smart Score rating system, indicating that the stock is likely to outperform market expectations. Shares have gained 29.6% over the past year.

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