Workday: The Drop Is an Opportunity

Workday (WDAY) is making impressive progress as far as the growth in its financial performance is concerned. In its second quarter, Workday reported total revenue of $282.7 million, up 51% from the same period last year. Moving ahead, the company estimates third-quarter revenue to be in $300 million to $303 million range, an expansion of 39% to 41% over the same period last year.

More importantly, Workday reduced its operating loss last quarter to $0.7 million as compared to a non-GAAP operating loss of $19.1 million in the prior-year period.
However, despite this impressive growth, Workday’s shares have declined 15% this year. This looks like an opportunity in disguise as the company could do well in the long run. Let’s see why.

Improving end market demand and traction

There’s growing customer demand for human capital management with the expansion of the company’s footprint across the globe. Further, the company’s innovative investments are also starting to deliver impressive results with the strengthening balance sheet and solid activities in its government and education business unit. Also, Workday’s business outside North America is expanding significantly with a notable start for the beginning of this year.

During the previous quarter, Workday recorded some major customer milestones. It currently has over 1,000 customers across the globe and is successfully continuing to serve and maintain rather than grow its customer base.

The human capital management service of Workday is gaining significant customer traction and is believed to deliver solid top line growth for the company. In the second quarter, Workday added new customers including Texas A&M, Cleveland Clinic, and Pfizer with the company’s EMEA team adding DS Smith and Centrica as new customers. Workday currently has over 100 enterprise customers situated in the European continent and is witnessing significant traction in its major European markets, like Switzerland, Austria and Germany.

Workday exceeded 150 customers who are currently leveraging its Financial Management suite having over 80 live customers for these applications. Going forward, Workday is expected to become a key cloud financials provider.

Analyst sentiments

The shares of Workday recently fell on a poor billings estimate with the company’s future sales projected to be in $310 million to $315 million range during the third quarter ending October 2015. This was below the market research firm FactSet’s estimate of $336.8 million.

However, the consensus estimate among 35 polled investment analysts evaluating Workday suggests that the company will outperform the market. This consensus rating is maintained since the investment analyst’s sentiments got better on Nov 05, 2012.

Thus, there’s a mix of analyst’s sentiments about Workday, some illustrating healthy future growth performance of the stock while others depicting slowing order growth as a weakness. However, investors should not ignore the fact that Workday is adding customers at an impressive pace, and this makes the stock a good investment for the long run.


Looking at the pace at which Workday is improving its revenue and reducing the loss, the company is quite close to attaining profitability. Moreover, its customer base is growing at a terrific pace, which is another positive to consider. Thus, in my opinion, it will be a wise idea for investors to capitalize on Workday’s drop by buying more shares.
Published on Sep 13, 2015
By Harsh Singh Chauhan

Copyrighted 2016. Content published with author's permission.

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