Why Workday (WDAY) Shares Are Falling Today

Petr Huřťák /
2024/05/24 12:03 pm EDT

What Happened:

Shares of finance and HR software company Workday (NASDAQ:WDAY) fell 13.9% in the morning session after the company reported first-quarter earnings results with billings unfortunately missing analysts' expectations, while revenue beat by a narrow margin. Adding to the weakness was subscription revenue guidance for the next quarter and the full year, which came in slightly below expectations. Specifically, the company called out increased deal scrutiny, as fewer large deals were closed compared to the previous quarter. Also, it noted that customers committed to lower headcount levels on renewals than expected. Looking ahead, the company expects the challenges to persist in the near term, and this factor was baked into the revised FY 2025 subscription revenue guidance. 

Overall, this was a mediocre quarter for Workday, given the weak performance and underwhelming guidance. Also, the highlighted challenges are likely to affect investors' sentiments in the near term.

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What is the market telling us:

Workday's shares are quite volatile and over the last year have had 6 moves greater than 5%. But moves this big are very rare even for Workday and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 12 months ago, when the stock gained 11% on the news that the company delivered an impressive "beat and raise" first quarter, surpassing analysts' expectations across key topline metrics such as total billings, total revenue, and subscription revenue. Profitability metrics also came in strong as gross margin and non-GAAP operating income were ahead of Consensus. However, there was a decline in free cash flow margin, which also fell short of estimates. 

Looking ahead, next quarter's total revenue guidance was roughly inline, though the low end of fiscal 2024 subscription revenue guidance was raised. Additionally, the company maintained fiscal 2024 non-GAAP operating margin guidance of 23%. The company announced Zane Rowe as the new Chief Financial Officer (CFO). He was formerly the CFO of VMware, assuming the position in 2016. 

Overall, the company demonstrated strong performance driven by solid revenue and profitability while guidance was reassuring. There was also qualitative emphasis in the earnings release on AI capabilities and the commitment to integrating AI throughout the product portfolio.

Workday is down 15.7% since the beginning of the year, and at $225.86 per share it is trading 26.5% below its 52-week high of $307.21 from February 2024. Investors who bought $1,000 worth of Workday's shares 5 years ago would now be looking at an investment worth $1,073.

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