Normally when a company posts a double-digit earnings beat, the stock price follows suit. Workday (NASDAQ: WDAY) beat earnings expectations by 32% in the first quarter. They followed that up by beating profit expectations by 19% in the second quarter. However, on both occasions, WDAY stock fell after their earnings report.
Maybe it was the flattish revenue. Maybe it was retail investors being more focused on meme stocks. In late July, WDAY stock dropped because its deal with Amazon (NASDAQ: AMZN) fell through based on Workday’s inability to scale its software to meet Amazon’s needs. However, that drop was muted as the company acknowledged that it continued to do business with Amazon, but on a smaller scale.
Ultimately, it could also have been a question of WDAY stock climbing 106% from the onset of the Covid-19 pandemic to the end of 2020. Whatever the reason, Workday investors were undoubtedly frustrated. However, it appears that the third time is the charm for Workday. In early trading after the company’s August 26 earnings report, WDAY stock shot up just over 9%. And this was on top of the 6% increase the stock enjoyed in the week prior to earnings.
What Did the Earnings Report Say?
In the first place, Workday delivered another quarter of strong sequential growth in earnings. The $1.23 in non-GAAP EPS was a 41% increase from the prior quarter. The company also delivered total revenues of $1.26 billion which was 18.7% higher than the $1.18 billion it posted in the prior quarter.
In summarizing the company's earnings report, co-founder, co-CEO and chairman Aneel Bhursi said, “
“This quarter was one of our strongest in company history. Our customer community has grown to more than 55 million users and more than half of the Fortune 500 have selected Workday...To meet this moment of great opportunity...we continue to invest in our employees to help drive innovation and customer satisfaction. Looking ahead, I am optimistic about our future and our position in supporting the changing world of work.”
But anybody that knows about Workday knows that what really gets investors excited is the company’s ability to generate “sticky” revenue as a subscription-as-a-service (SaaS) company. And in the company’s most recent quarter, subscription revenue climbed $1.11 billion a 19.5% year-over-year increase.
And it also sounds like the company delighted investors by raising its guidance for sales, operating margin, and subscription sales.
The Cloud is the Place to Be
Workday helps businesses move their enterprise management solutions to the cloud. But to say the company is only a cloud play is to miss the broader point. Workday is also a player in the area of “big data.” Essentially, the company is promising that their software platform will allow businesses to have access to the data they need in real time.
However, being a cloud-based solution doesn’t hurt particularly in a world where workers are likely to be less tethered to the office than ever before. On an increasing basis, companies are looking for solutions to allow employees to have secure access to enterprise level information no matter where they are working. And with many companies rethinking their return-to-office plans over concerns about the Delta variant, WDAY stock should continue to have a strong growth path.
Ironically, Workday raised a few eyebrows earlier this year when it announced that is was not only increasing headcount by 20% in 2022, but that it was also advocating for its employees to come back to the office.
Analysts Are Bullish After Earnings
It hasn’t taken long for analysts to express their delight over Workday’s earnings report. According to MarketBeat data on Workday. Ten analysts have raised their price target for the company and two other analysts reiterated their bullish rating.
The new price target would take WDAY stock past its 52-week high which will also be an all-time high for the stock.
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