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Factors You Must Note Ahead of Workday's (WDAY) Q3 Earnings

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Zacks Equity Research
·4 min read
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Workday, Inc. WDAY is slated to release third-quarter fiscal 2021 results on Nov 19.

The Zacks Consensus Estimate for fiscal third-quarter earnings stands at 67 cents, suggesting growth of 26.4% from the year-ago reported figure. Notably, the consensus estimate for earnings has remained stable over the past seven days.

The consensus mark for fiscal third-quarter revenues is currently pegged at $1.09 billion, indicating an improvement of 15.8% from the prior-year quarter.

Factors Likely to Have Influenced Q3 Results

Workday’s fiscal third-quarter performance is likely to reflect gains from high demand for its cloud-based human capital management (HCM) solutions, courtesy of coronavirus crisis induced accelerated digital transformation of enterprises taking place across all industries.

Moreover, solid uptick in Workday Adaptive Planning, Workday Prism Analytics and Business Planning Cloud offerings may have contributed to the company’s fiscal third-quarter performance.
 

Workday, Inc. Price and EPS Surprise

Workday, Inc. Price and EPS Surprise
Workday, Inc. Price and EPS Surprise

Workday, Inc. price-eps-surprise | Workday, Inc. Quote

Further, growing clout of Workday People Experience, Workday People Analytics and Workday Extend, integrated with enhanced capabilities, is expected to have driven growth in the fiscal third quarter.

Likewise, innovative feature additions including Workday Assistant, Workday Help and Workday Journeys are expected to have bolstered adoption of its offerings, which in turn may get reflected in the to-be-reported quarter’s revenues.

Also, synergies from Scout RFP and Adaptive Insights acquisitions, and strength in product suite are expected to have contributed to the fiscal third-quarter performance.

For the fiscal third quarter, Workday expects subscription revenues in the range of $948 million to $950 million. The Zacks Consensus Estimate is pegged at $950 million, indicating growth of 19% on a year-over-year basis.

 

Strategic Developments in Q3

During the quarter under review, Workday and International Business Machines IBM expanded partnership in a bid to introduce a joint return-to-workplace focused solution to help enterprises reopen safely. The integrated solution combines Workday’s Adaptive Planning and HCM solutions, and IBM’s Watson Works.

Moreover, existing partnerships with Microsoft with primary focus on Teams and Azure Active Directory, and salesforce’s Work.com are expected to have aided the company acquire more customers as enterprises increasingly seek to optimize employee work. This is likely to have benefited the to-be-reported quarter’s performance.

Additionally, 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.

Although investments on product roll outs bode well over the longer haul, increased expenditure on product portfolio expansion and sales and marketing might have limited margin expansion in the fiscal third quarter.

Further, coronavirus-induced layoffs owing to broader macroeconomic weakness and lower spend from small and medium sized businesses (SMBs) may have negatively impacted contract renewals in the fiscal third quarter, which in turn is likely to have acted as a headwind.

Markedly, professional services revenues for the fiscal third quarter are projected to be $135 million. The Zacks Consensus Estimate is pegged at $135 million, suggesting a decline of 3.3% on a year-over-year basis.

What Our Model Says

Our proven model does not conclusively predict an earnings beat for Workday this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But, that’s not the case here.

Workday has an Earnings ESP of 0.00% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks That Warrant a Look

Here are some stocks worth keeping a tab on, as our model shows that these have the right combination of elements to deliver an earnings beat in the upcoming releases.

Momo Inc. MOMO has an Earnings ESP of +5.41% and a Zacks Rank #3.

DocuSign Inc. DOCU has an Earnings ESP of +4.35% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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