Workday (NASDAQ:WDAY) Posts Q4 Sales In Line With Estimates But Stock Drops

Kayode Omotosho /
2024/02/26 4:07 pm EST

Finance and HR software company Workday (NASDAQ:WDAY) reported results in line with analysts' expectations in Q4 FY2024, with revenue up 16.7% year on year to $1.92 billion. It made a non-GAAP profit of $1.57 per share, improving from its profit of $0.99 per share in the same quarter last year.

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Workday (WDAY) Q4 FY2024 Highlights:

  • Revenue: $1.92 billion vs analyst estimates of $1.92 billion (small beat)
  • EPS (non-GAAP): $1.57 vs analyst estimates of $1.47 (7% beat)
  • Free Cash Flow of $950 million, up 142% from the previous quarter
  • Gross Margin (GAAP): 76%, up from 72.5% in the same quarter last year
  • Market Capitalization: $80.45 billion

"Workday's results this quarter are a testament to the strength of our value proposition and the durability of our business," said Carl Eschenbach, CEO, Workday.

Founded by industry veterans Aneel Bushri and Dave Duffield after their former company PeopleSoft was acquired by Oracle in a hostile takeover, Workday (NASDAQ:WDAY) provides cloud-based software for organizations to manage and plan finance and human resources.

Finance and Accounting Software

Finance and accounting software benefits from dual trends around costs savings and ease of use. First is the SaaS-ification of businesses, large and small, who much prefer the flexibility of cloud-based, web-browser delivered software paid for on a subscription basis than the hassle and expense of purchasing and managing on-premise enterprise software. Second is the consumerization of business software, whereby multiple standalone processes like supply chain and tax management are aggregated into a single, easy to use platforms.

Sales Growth

As you can see below, Workday's revenue growth has been solid over the last two years, growing from $1.38 billion in Q4 FY2022 to $1.92 billion this quarter.

Workday Total Revenue

This quarter, Workday's quarterly revenue was once again up 16.7% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $56.33 million in Q4 compared to $78.91 million in Q3 2024. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

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Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Workday's free cash flow came in at $950 million in Q4, up 53% year on year.

Workday Free Cash Flow

Workday has generated $1.92 billion in free cash flow over the last 12 months, an eye-popping 26.5% of revenue. This robust FCF margin stems from its asset-lite business model, scale advantages, and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.

Key Takeaways from Workday's Q4 Results

It was good to see Workday beat analysts' subscription revenue and EPS estimates. We note that its GAAP EPS beat expectations by a much wider margin due to the release of a valuation allowance for its deferred tax credits totaling $1.1 billion. The company also reiterated its full-year subscription revenue guidance. 

On February 1st, Workday appointed a new CEO, Carl Eschenbach. Eschenbach replaces co-founder Aneel Bhusri, who will stay on as executive chair for the company. In other developments, Workday acquired HiredScore, a provider of AI-powered talent orchestration solutions, and announced a new share repurchase program of $500 million. 

Zooming out, we think this was a decent quarter, showing that the company is staying on target. The market was likely expecting the company to raise its guidance, however, and the stock is down 5% after reporting, trading at $292 per share. 

So should you invest in Workday right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.