The BareStory
Shares of Workday fell after the software company reported third-quarter earnings and issued financial guidance that disappointed investors. The company’s stock dropped more than 5% in extended trading Tuesday and fell by nearly 8% on Wednesday. The decline was linked to a forecast for the fourth quarter that included an adjusted operating margin of at least 28.5%, which was below analyst expectations. Workday also revised its full-year subscription revenue forecast to $8.83 billion, an update some analysts described as a minor increase.
Despite the reaction to its forecast, the company’s results for the fiscal third quarter, which ended October 31, surpassed expectations. Workday reported revenue of $2.43 billion, an increase of approximately 13% from the prior year, with subscription revenue accounting for $2.24 billion. The company posted adjusted earnings of $2.32 per share and net income of $252 million, up from $193 million in the same period a year ago.
In its report, Workday highlighted its focus on artificial intelligence. The company recently completed a $1.1 billion acquisition of AI software firm Sana and has announced new AI agents. According to CEO Carl Eschenbach, AI products contributed over 1.5 percentage points to annualized revenue growth. Eschenbach also stated that Workday faced some "turbulence" with higher education customers that rely on U.S. funding. The company’s updated revenue guidance includes contributions from the Sana acquisition and a new contract with the U.S. Defense Intelligence Agency.
Following the report, analysts offered mixed reactions. Analysts at Stifel wrote that the company's underlying momentum does not show signs of stabilization, and they lowered their price target on the stock. Analysts at Cantor Fitzgerald noted that the guidance was close to a slight downgrade. In contrast, analysts at RBC said they were encouraged by Workday's early AI momentum, though they also reduced their price target.
How it may affect me
As a U.S. reader:
• Your retirement or investment accounts may see a short-term decline if they hold Workday stock, which fell significantly after the company's financial guidance was released.
• The company's growing focus on AI could change the HR and financial software used by many U.S. companies, potentially altering future workplace processes for their employees.
• Administrative services at some universities could be affected, as the company noted "turbulence" with higher education customers that rely on U.S. funding.
