Workday Earnings Beat Expectations, Yet Shares Slip on Guidance

Workday Reports Strong Earnings but Lowers Guidance

Workday (NASDAQ: WDAY) recently announced its third-quarter earnings and revenue, showcasing performance that exceeded expectations. However, despite the positive revenue and earnings beat, the stock faced a decline of 6% in after-hours trading, largely linked to its guidance, which did not align with investor anticipations.

Financial Performance Highlights

The cloud applications provider reported adjusted earnings per share of $1.89, surpassing the analysts' estimate of $1.76. Moreover, the total revenue reached $2.16 billion, which not only exceeded the consensus estimate of $2.13 billion but also marked a significant year-over-year growth of 15.8%.

Guidance and Market Reaction

Despite these solid quarterly results, the outlook for future growth prompted a negative reaction from investors. Workday projects its fiscal 2025 subscription revenue to hit $7.703 billion, which translates to a growth rate of 17%. While this figure reflects healthy growth, it appears less aggressive than what some analysts had hoped for, leading to investor disappointment.

CEO Comments on Performance

Carl Eschenbach, the CEO of Workday, expressed confidence in the company’s performance, stating, "Workday's solid performance in Q3 reflects the trust our customers place in us across industries, the global momentum around our AI-driven innovations, and the strength of our partner ecosystem." This statement emphasizes the ongoing faith in Workday’s transformative potential.

Subscription Revenue Backlog

In terms of financial stability, Workday reported a 12-month subscription revenue backlog amounting to $6.98 billion, reflecting a substantial 15.3% increase from the previous year. Additionally, Total (EPA: TTEF) disclosed a subscription revenue backlog of $22.19 billion, showcasing a robust increase of 20.3% year-over-year.

Cash Flow Overview

Cash flow remains a vital aspect as well. Workday's operating cash flows decreased to $406 million from $451 million in the prior year. Free cash flows similarly showed a decline, dropping from $391 million to $359 million during the same quarter, raising questions about operational efficiencies moving forward.

Fourth Quarter Expectations

Looking ahead, for the fourth quarter, Workday anticipates subscription revenue to reach $2.025 billion, which indicates a 15% growth rate. The company expects to maintain a non-GAAP operating margin of 25.0%. These projections are pivotal as they will influence investor sentiment in the upcoming months.

Overall Outlook

In summary, while Workday delivered an impressive earnings report, the decreased guidance has left many in the investment community reassessing their positions. Understanding the broader landscape of enterprise cloud applications and Workday’s strategic advantages will be essential for predicting future performance.

Frequently Asked Questions

What were Workday's earnings per share for the third quarter?

Workday reported adjusted earnings per share of $1.89, exceeding estimates of $1.76.

How did Workday's revenue perform in the last quarter?

The company posted a revenue of $2.16 billion, which was above the expected $2.13 billion.

What does Workday's guidance for fiscal 2025 indicate?

Workday expects subscription revenue of $7.703 billion for fiscal 2025, reflecting a 17% increase.

How did investors react to Workday's performance?

Despite good earnings, investors reacted negatively, leading to a 6% drop in shares due to disappointing forecasts.

What are the cash flow figures reported by Workday?

Workday reported $406 million in operating cash flows and $359 million in free cash flows, both showing declines compared to the previous year.

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