Workday's Q3: What Was Bullish, What Was Bearish

Workday Inc WDAY reported a top- and bottom-line beat in its third quarter earnings report Wednesday, but they were overshadowed by other concerning metrics.

The Analyst

UBS' Jennifer Swanson Lowe maintains a Sell rating on Workday's stock with an unchanged $95 price target.

The Thesis

Workday's earnings report demonstrated the company is making "steady progress," but is not where it should be to justify a bullish stance, Swanson Lowe said in a research report. (See Swanson Lowe's track record here.) 

For example, Workday's annualized customer value growth of 60 percent in financials was encouraging, yet not good enough to satisfy bulls who were hoping for an acceleration, the analyst said. And the company's maturing growth profile in human capital management of 25-30 percent is a "respectable level," but bulls likely require a higher rate to get excited, she said. 

Workday's fiscal 2019 subscription revenue guidance of $2.25 billion was a "shade above" what analysts were expecting, but at the same time investments in R&D and S&M will also limit margin expansion by only 50 basis points, the analyst said. While these figures could prove to be conservative, the guidance nevertheless "stands in stark contrast" to other SaaS leaders that offered a similar growth rate profile with a margin expansion guidance of 150-200 basis points, Swanson Lowe said. 

Workday's stock at $104 per share implies an 8.5x EV/CY18E Sales multiple, which is already a premium to SaaS peers at 7.4x who offer better growth prospects, according to UBS. 

Price Action

Shares of Workday were trading lower by more than 2 percent Thursday morning.

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Photo courtesy of Workday.