Workday (NASDAQ:WDAY) Reports Q4 In Line With Expectations But Stock Drops

Full Report / February 26, 2024

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.

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

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.

Surprisingly a lot of companies still rely on a mixture of paper records, spreadsheets and legacy on-premise software to run their finance, HR and resource planning. As a result, critical information is often being siloed in systems that are unable to communicate with each other, and that makes planning and keeping track of expenses slow, error prone and cumbersome work.

Workday offers cloud-based software that integrates all of the finance and HR data and functions as a de facto operating system of the company. Majority of the company’s customers are large enterprises, and Workday often replaces tens of individual, single-purpose software applications. The platform initially started as an HR tool, helping companies manage employee onboarding, payroll, time tracking and recruiting pipelines. Over time it added a similar set of functionalities for the finance teams, providing them with tools for accounting, finance reporting and contract tracking.

The key selling point for Workday is that it offers one, always up-to-date source of truth and system of record for the whole company, doesn’t matter how large or geographically spread. As a result it is also able to provide valuable business insights, for example find departments where high employee turnover might signal looming problems or identify what are the bottlenecks in the hiring process.

Implementing a system like Workday can be a lengthy process, and while cloud-based platforms are easier to onboard, it can still take more than a year. On the other hand it means that the products are naturally quite sticky and hard to leave.

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.

Workday competes with enterprise software vendors like Oracle (NYSE:ORCL) and SAP (NYSE:SAP) as well as modern cloud platforms such as Anaplan (NYSE:PLAN), BlackLine (NASDAQ:BL), and Coupa (NASDAQ:COUP).

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.


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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 76% in Q4.

Workday Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.76 left to spend on developing new products, sales and marketing, and general administrative overhead. Trending up over the last year, Workday's impressive gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.

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. 

Is Now The Time?

When considering an investment in Workday, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

We think Workday is a good business. Although its with analysts expecting growth to slow from here, its bountiful generation of free cash flow empowers it to invest in growth initiatives.

The market is certainly expecting long-term growth from Workday given its price-to-sales ratio based on the next 12 months is 9.8x. There's definitely a lot of things to like about Workday and looking at the tech landscape right now, it seems that the company trades at a pretty interesting price point.

Wall Street analysts covering the company had a one-year price target of $302.16 per share right before these results (compared to the current share price of $292), implying they saw upside in buying Workday in the short term.

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