Why Is Workday (WDAY) Up 4.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Workday (WDAY). Shares have added about 4.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Workday due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Workday Earnings & Revenues Top Estimates in Q3

Workday reported third-quarter fiscal 2021 non-GAAP earnings of 86 cents per share, which outpaced the Zacks Consensus Estimate by 28.36%. Moreover, the bottom line improved 62.3% year over year.

Bottom-line growth can primarily be attributed to an improvement of 17.9% in revenues, which amounted to $1.106 billion. The top line surpassed the Zacks Consensus Estimate by 1.83%. The upside was driven by solid growth in subscription services’ revenues.

Quarter in Detail

Subscription services revenues (87.6% of total revenues) rallied 21.3% year over year to $968.5 million on the back of expanding customer base. Management had anticipated subscription revenues to be $948-$950 million.

Backlogs from Subscription revenues were $8.87 billion, up 23.4% year over year, primarily driven by robust growth in new ACV bookings through both net new and add-on business domains, deal renewals, and net retention of customers. However, the company encountered headwinds in raking in net new business, which limited growth.

Management, further, stated that per the company’s subscription model, the headwinds will be more pronounced in “next year’s subscription revenue,” which is anticipated to weigh on growth at least in the near-term.

Subscription revenue backlog that will be recognized within the next two years totaled $5.94 billion, up 21%. In the fiscal third quarter, gross retention rate exceeded 95% and net retention, which includes upselling at the time of renewal, was 100%.

Professional services’ revenues (12.4% of total revenues) declined 1.6% from the year-ago quarter to $137.4 million. Professional services revenues were projected to be $135 million.

Revenues outside the United States climbed 16.2% year over year to $272 million and contributed 25% to total revenues.

The company witnessed the rapid deployment of HCM solution in the fiscal third quarter, which was selected by Novartis, DraftKings, CTBC Bank, and Mexico-based Tecnologias Rappi, among others.

The company also expanded its Fortune 500 clientele with one of the leading U.S. telecommunications services company adopting its HCM offerings. Key HCM go-lives in the reported quarter included Walmart, Accenture, General Electric and UPS.

Workday Financial Management customer base continued to expand to over 1,000, with key wins, including the State of Washington, Fifth Third Bank, University of Central Florida, Extendicare and The New York Times. Moreover, Progressive Insurance and Bon Secours Mercy Health were the key core financials go-lives in the quarter.

The company has also been witnessing momentum in its latest offerings, including Workday Adaptive Planning, Spend Management and Prism Analytics. Synergies from Scout RFP acquisition aided Workday to win multiple customers. Markedly, Scout RFP is fully integrated and has been re-branded as “Workday Strategic Sourcing,” which is part of spend management domain helmed by Scout co-founder and CEO, Alex Yakubovich.

During the quarter under review, the company rolled out two new offerings, VIBE Central and VIBE Index, to aid HR leaders boost inclusivity, and accelerate belonging and diversity (B&D) initiatives within the workplace. Workday noted that VIBE is the acronym for Value Inclusion, Belonging, and Equity.

Additionally, the company announced availability of Workday Accounting Center and Workday Talent Marketplace. Also, Workday People Analytics — an augmented analytics application that delivers deep insights regarding risks and opportunities related to a company’s workforce — is gaining traction.

Management is optimistic on the growing pipeline of the latest offerings, including Health,  Accounting Center, Extend, and People Analytics, which drove the top line in the reported quarter.

In the large enterprise domain, the company inked multiple new Global 2000 (G2K) HCM customer wins and one new Fortune 500 core financial solutions’ deal. Solid momentum across education and government agencies, and a solid pipeline of deal wins are also encouraging.

Further, the company witnessed strength across medium enterprise vertical. Moreover, robust performance across the unites states of America and DACH regions remained notable.



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