Workday's (NASDAQ:WDAY) Q4 Results: Revenue In Line With Expectations, Stock Soars On Strong Earnings

Radek Strnad /
2022/02/28 4:08 pm EST
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Finance and HR software company Workday (NASDAQ:WDAY) reported results in line with analyst expectations in Q4 FY2022 quarter, with revenue up 21.6% year on year to $1.37 billion. Workday made a GAAP loss of $73.2 million, down on its loss of $71.7 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 FY2022 Highlights:

  • Revenue: $1.37 billion vs analyst estimates of $1.36 billion (0.86% beat)
  • EPS (non-GAAP): $0.78 vs analyst estimates of $0.71 (9.57% beat)
  • Free cash flow of $541.7 million, up 54.2% from previous quarter
  • Gross Margin (GAAP): 71.6%, in line with same quarter last year

"We closed out the year with another strong quarter that saw continued acceleration of our business, including a growing global workforce and a relentless focus on employees, customers, and innovation," said Aneel Bhusri, co-founder, co-CEO, and chairman, 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.

Sales Growth

As you can see below, Workday's revenue growth has been solid over the last year, growing from quarterly revenue of $1.13 billion, to $1.37 billion.

Workday Total Revenue

This quarter, Workday's quarterly revenue was up a very solid 21.6% year on year, which is above average for the company. But the growth did slow down compared to last quarter, as the revenue increased by just $48.8 million in Q4, compared to $66.9 million in Q3 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

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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 71.6% in Q4.

Workday Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.71 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop this is still 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 $56.3 billion, more than $3.64 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 good to see Workday exceed EPS estimates so strongly and we are curious to see the guidance the company will be announcing during its earnings call. Overall, this quarter's results so far look very solid. The company is up 6.98% on the results and currently trades at $245.51 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.