Why Workday (WDAY) Shares Are Plunging Today

Petr Huřťák /
2023/09/28 9:59 am EDT

What Happened:

Shares of finance and HR software company Workday (NASDAQ:WDAY) fell 5.67% in the morning session after the company provided underwhelming financial projections during its Financial Analyst Day session for 2023. The company lowered the long-term annual subscription revenue growth target through FY'2027 to 17-19%, down from the 20+% long term outlook provided during the same session last year. In addition, the company expects long term operating cash flow margin of ~30%, down from the previous target of 35%. Finally. the outlook for non-GAAP operating margin was inline at 25%+.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Workday? Access our full analysis report here, it's free.

What is the market telling us:

Workday's shares are not very volatile than the market average and over the last year have had only 10 moves greater than 5%. 

The biggest move we wrote about over the last year was four 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 up 25.5% since the beginning of the year, but at $213.73 per share it is still trading 15.3% below its 52-week high of $252.21 from September 2023. Investors who bought $1,000 worth of Workday's shares 5 years ago would now be looking at an investment worth $1,460.

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