Analysts Cheer Workday's Better Than Feared Q2 Amid Macro Concerns

Workday, Inc WDAY clocked 21.9% revenue growth in Q2 to $1.54 billion, which beat average analyst estimates. The subscription revenues of $1.37 billion were up 22.8%.
Workday reported EPS of $0.83, which beat average analyst estimates.
Workday reported solid 2Q23 results highlighted with an uncertain macro backdrop pressuring sales much less than feared, Needham analyst Scott Berg acknowledged.
cRPO growth re-accelerated for one of its better, more recent outperformance quarters.
Although 2H guidance is more conservative based on the assumption of elongating sales cycles, management is yet to see widespread changes in stark contrast to other bellwether SaaS companies' reports.
The company also raised operating margin guidance to coincide with the solid sales but reflects a more measured hiring pace to match the slight change in sales tone.
He reiterated his Buy rating and raised the price target to $220 from $200 as he believes pandemic pent-up demand trumps macro pressure in the short run.
Barclays analyst Raimo Lenschow thinks Workday (Overweight, price target $208) benefited from weaker Q1 results months ago.
Earlier than other players, it sharpened its sales focus and was better prepared for longer sales cycles and more approval steps.
Better sales execution combined with impressive strategic significant wins like CRM for Financials should increase investor confidence that WDAY can maneuver these uncertain times and, given its favorable valuation, should deserve a second look from investors.
Credit Suisse analyst Phil Winslow reiterated Neutral and cut the price target from $230 to $215.
He expected the current wave of application modernization to focus on front-office CRM applications tied to Digital Transformation before shifting to back-office functions, including HR and finance.
However, he was impressed by Workday's results and go-to-market momentum this quarter with new logo wins and improved upsell, which better positions the company to achieve durable subscription revenue growth over the near- and medium-term.
KeyBanc analyst Michael Turits reiterated an Overweight and $207 price target following a solid all-around Q2 beat. Two large deals slipped from Q1 closing this quarter, suggesting demand for back-office modernization remains relatively stable. Plus, Workday may have gotten an early start in its go-to-market response after seeing the macro impact a quarter before some peers.
He was encouraged by Q2 results and continues to see the back office as a relative beneficiary of digital transformation post a COVID lull, with several LT catalysts for both cloud HCM and FINS.
BMO analyst Daniel Jester reiterated Outperform and cut the price target to $217 from $239.
Workday's Q2 results surpassed a lowered bar.
Into the print, uneven results from other enterprise-focused software companies amplified concerns that Workday would need to cut FY23 revenue guidance. However, the analyst's work, including the recent HCM Spotlight series, highlighted more excellent resiliency.
The unchanged FY23 revenue outlook following upside on cRPO to 21.7% Y/Y implies incremental macro headwinds, but to a potentially lesser degree than some peers as tight labor markets support HCM demand and FINS scaling continues.
His estimates are generally unchanged, and he likes the shares here.
Mizuho analyst Siti Panigrahi reiterated a Buy and bumped the price target to $220 from $200.
Workday reported solid Q2 results, beating on revenue and operating margin, providing some relief in enterprise software following disappointing results from peers.
He believes Workday remains in a solid position to become the preeminent vendor in the back-office suite longer term.
He considers Analyst Day (September 13) a potential catalyst.
Price Action: WDAY shares traded higher by 3.08% at $167.36 on the last check Friday.

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