Finance and HR software company Workday (NASDAQ:WDAY) reported results in line with analyst expectations in Q4 FY2023 quarter, with revenue up 19.6% year on year to $1.65 billion. Workday made a GAAP loss of $125.7 million, down on its loss of $73.3 million, in the same quarter last year.
Is now the time to buy Workday? Access our full analysis of the earnings results here, it's free.
Workday (WDAY) Q4 FY2023 Highlights:
- Revenue: $1.65 billion vs analyst estimates of $1.63 billion (small beat)
- EPS (non-GAAP): $0.99 vs analyst estimates of $0.90 (10.4% beat)
- Free cash flow of $620.9 million, up 77.4% from previous quarter
- Gross Margin (GAAP): 72.5%, up from 71.7% same quarter last year
"We closed our fiscal year with another solid quarter, further reinforcing the strength of our value proposition as more organizations continue to select Workday to help manage their people and finances," said Aneel Bhusri, co-founder, co-CEO, and chair, 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 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.
As you can see below, Workday's revenue growth has been solid over the last two years, growing from quarterly revenue of $1.13 billion in Q4 FY2021, to $1.65 billion.
This quarter, Workday's quarterly revenue was once again up 19.6% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $47.2 million in Q4, compared to $63.3 million in Q3 2023. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.
In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Workday's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 72.5% in Q4.
That means that for every $1 in revenue the company had $0.72 left to spend on developing new products, marketing & sales and the general administrative overhead. This is around the lower average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market so it is important to track.
Key Takeaways from Workday's Q4 Results
Sporting a market capitalization of $47.1 billion, more than $6.12 billion in cash and with positive free cash flow over the last twelve months, we're confident that Workday has the resources it needs to pursue a high growth business strategy.
It was an overall solid quarter from WDAY, with a small revenue beat in the quarter, a 10% EPS beat, and strong FCF generation. Additionally, 24-month subscription revenue backlog also beat by about 2%, showing healthy demand trends. However, we are still awaiting forward guidance, which will come on the earnings call and could move the stock. The company is up 1.04% on the results and currently trades at $186.9 per share.
Should you invest in Workday right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
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The author has no position in any of the stocks mentioned.