Workday Analysts React To Earnings Beat, Highlight Margin Expansion And Revenue Reacceleration

Workday Inc WDAY shares jumped 13% on Friday after the company reported a quarterly earnings beat and named a new co-CEO.

Workday reported an adjusted EPS of 84 cents on $1.06 billion in revenue. Both numbers beat consensus analyst estimates of 66 cents and $1.04 billion, respectively. Revenue was up 20% from a year ago.

In addition to the impressive numbers, Workday announced co-president Chano Fernandez will be promoted to co-CEO alongside Aneel Bhusri.

Rising Operating Margins: Piper Sandler analyst Brent Bracelin said expanding operating margins and recovering human capital management are bullish trends for Workday.

“The near doubling of the Q2 operating margin to 24% from 12% last quarter reinforces the longer-term profit potential inherent in cloud software models at multi-billion scale,” Bracelin wrote in a note.

Needham analyst Scott Berg said Workday’s subscription backlog, its revenue growth and its operating margins all exceeded expectations.

“We were most impressed with the reported nine new Global 2000 HCM wins and two FINs wins, which includes a 4k employee federal agency which suggests the government vertical is becoming an attractive opportunity heading into 2H21 and FY22,” Berg wrote.

Credit Suisse analyst Brad Zelnick said Workday has come a long way in the past 90 days.

“While macro uncertainties haven’t completely dissipated, we think this quarter certainly weakens the bear thesis around Workday selling longer-term ROI projects that will be deprioritized in the current environment,” Zelnick wrote.

Revenue Reacceleration? Morgan Stanley analyst Keith Weiss said Workday had a strong quarter, but it has an even brighter future.

“A broadening solution set and a faster Cloud shift should accelerate growth in CY21,” Weiss wrote.

Bank of America analyst Kash Rangan said Workday has the potential to accelerate its revenue growth in fiscal 2022.

“In our view, FY21 Subs rev guide is still conservative, esp with easier comps in 2H, high teens y/y guide for 3Q backlog (below 20% in Q1 and 22% in Q2) despite improving trends, and continued 50%+ net new ACV growth from base, providing upside to numbers,” Rangan wrote.

Ratings And Price Targets:

• Piper Sandler has a Neutral rating and $248 target.
• Needham has a Buy rating and $260 target.
• Morgan Stanley has an Overweight rating and $295 target.
• Credit Suisse has a Neutral rating and $215 target.
• Bank of America has a Buy rating and $275 target.

Workday's stock trades around $244.44 at time of publication.

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