Workday co-CEO Karl Eschenbach speaks on CNBC’s “Squawk Box” during the World Economic Forum Annual Meeting in Davos, Switzerland on January 18, 2024.
Adam Gallici | CNBC
Working days Shares jumped 12% on Friday, a day after the finance and human resources software maker reported second-quarter results that beat analyst expectations and announced plans to further expand its adjusted operating margin through 2027.
Here’s how the company performed compared to the LSEG consensus:
- Earnings per share: Adjusted: $1.75 (expected: $1.65)
- Revenue: $2,085 million (prediction: $2,071 million)
Workday’s revenue grew about 17% year over year in the quarter ended July 31, the research firm said. statementSubscription revenue increased 17%. Net income was $132 million, or 49 cents per share, up from $79 million, or 30 cents per share, in the year-ago period.
In terms of guidance, Workday now expects adjusted operating margins of 25.25% for fiscal 2025, lower than its earlier forecast of 25%. In May.
Workday Chief Financial Officer Zane Lowe said on a conference call with analysts on Thursday that he expects the company’s adjusted operating margin to expand 30% in fiscal 2026 and 2027, with annual subscription revenue growing 15%. In September 2023, Workday announced said The company was targeting adjusted operating margins of 25% and subscription revenue growth of 17% to 19% for fiscal 2027.
“We are relentlessly focused on scaling all processes across the company as we review our product and go-to-market efforts,” Rowe said. “We are also increasingly targeting our growth investments and balancing our product development and go-to-market resources.”
Deutsche Bank analysts led by Brad Zelnick raised their 12-month price target on Workday shares to $275 from $265 and have a “hold” rating on the stock.
“The 30% operating profit margin target increase was achieved sooner and much larger than most had expected, coming as a major surprise,” the analysts wrote.
Analysts at Citi, Evercore ISI and Piper Sandler also raised their price targets for Workday following the company’s report.
But things aren’t perfect for Workday: Companies are being more cautious than usual before signing deals, Lowe said, adding that employee growth within its existing customer base has slowed.
Many other software companies have also pointed to weakening economic conditions in recent quarters. But on Friday, Federal Reserve Chairman Jerome Powell said it was “time to adjust policy,” suggesting the central bank could cut benchmark interest rates, which could benefit growing cloud software companies like Workday. Investors have pulled out of these assets in 2022, opting for more defensive investments, anticipating higher interest rates to stave off inflation.
The WisdomTree Cloud Computing Fund, an exchange-traded fund that includes Workday, ended Friday’s trading session up 2%. The S&P 500 index rose 1%.
But Workday CEO Karl Eschenbach didn’t suggest market conditions will improve anytime soon.
“In fact, we don’t think the current IT spending environment and the environment that we’re selling into is just a reflection of the last few quarters,” he said. “We think this is going to be the new normal going forward. We’re ready because we have a great product.”
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