Why Workday Is a Screaming Buy

Workday (WDAY) announced fourth quarter ended January 31, 2016 total revenue of $323.4 million, an increase of 43 percent year-over-year from $226.3 million during the same period last year. Going forward, Workday has also provided revenue guidance for the first quarter and estimates net revenue to be in the range of $337 million to $339 million.

Workday declared fourth quarter of 2016 adjusted operating loss of $0.8 million, or minus 0.2% of the top line as against adjusted operating loss of $8.6 million, or minus 3.8% of the top line in the fourth quarter of 2015.

Impressive growth

The global enterprise cloud applications provider reported continued year-over-year top line growth primarily driven by robust demand for the company’s advanced HCM product offerings and superior financial management.

According to the latest surveys, the top finance leaders now realize that old finance and HR systems no longer meet their requirements and key trigger points are believed to encourage companies to gradually shift towards advanced cloud-enabled finance systems in the forthcoming two years.

Cloud finance is now gradually becoming popular and driving all the major companies with approximately 85% of the organizations planning to enhance their investments in developing upon cloud computing in the forthcoming two years.
Further, nearly 73% of companies have adopted or are preparing to adopt the cloud-based financial management system over the next two years.

The rapid penetration of cloud-based technologies in each of the global companies HR and finance management systems is believed to continue over a longer term as the major trend has just started and thus, it’s expected to drive sustainable long-term growth for the cloud computing provider companies such as, Workday and therefore, deliver notable shareholder returns.

What’s driving growth?

Approximately 71% of the key customers have consented with the fact that cloud empowers them to alter their core financial systems to match the increasingly changing business requirements. In addition, about 69% agree that cloud provides them with highly-advanced technology and continued innovation.

Hence, down the line the cloud-enabled financial management systems allows for quick informational access, enhanced efficiency, minimized demand and costs for IT, better agility and superior competitive benefits.

The increased transformation from the legacy HR and Finance management systems to advanced cloud-based Finance and HR management systems is projected to deliver strong and robust growth for Workday as the number of orders from the global customers is believed to pour-in significantly.

Subscription revenue for Workday grew 44 percent year-over-year from $181.9 million in fourth quarter of 2015 to $261.8 million in fourth quarter of 2016 and mainly due to rising customer traction for cloud-based services. Moving ahead, Workday projects first quarter subscription revenue to be in the range of $277 million to $278 million.

Workday reported fourth quarter of 2016 cash flow from operations and free cash flows of $98.5 million and $56.5 million respectively, depicting 104 percent and 433 percent respective growths from $48.3 million of operating cash flows and $10.6 million of free cash flows in the fourth quarter of 2015.

Both the company’s subscription top line growth and overall bottom line expansion is expected to continue over a longer term given, notably increasing customer traction for the Workday’s advanced cloud-based finance and HR management solutions.

The growing customer traction for Financial Management solutions of Workday is visible from the fact that 45 new customers joined the league during the fourth quarter of fiscal year 2016 and thus, making the overall count of customers for this key application to over 200. The company has more than 100 financial management clients in the production segment and online clients in 35 nations.

Workday recently declared intent to enhance its strategic partnership with ADP to offer huge global companies with integrated and advanced international payroll experience, combining ADP Global Payroll and Workday Human Capital Management (HCM) in a unique single user experience within the company.

The already solid organic growth of Workday is believed to get a boost through the latest expansion of the company’s agreement with ADP which is expected to drive true global growth for Workday, benefiting the key stakeholders.


Overall, the investors are advised to “Hold” their position in Workday, Inc. considering the company’s significant long-term growth prospects which are supported by a strong balance sheet with notable total cash of $1.97 billion against smaller total debt position of $507.48 million only, encouraging the company to make future growth investments. However, the profit margin of -24.94% seems misdirecting and indicate no profit but loss. The PEG ratio of 72.88 suggests expensive company growth compared to solid industry’s growth average of 0.92.
Published on Mar 11, 2016
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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