Workday Inc (NASDAQ: WDAY) shares dropped 4.8% on Wednesday after the company reported third-quarter earnings and revenue beats and raised its full-year subscription revenue guidance. Workday reported $798.5 million in total revenue, up 28% from a year ago and slightly ahead of consensus analyst forecasts.
Despite the strong quarter. Workday guided for fiscal 2021 subscription revenue growth of 21% and operating margins of 14%, well short of Wall Street expectations of 24% and 15.5%, respectively,
Several analysts have weighed in on Workday’s third-quarter numbers and guidance since the report. Here’s a sampling of what they’ve had to say.
Exciting And Frustrating
Bank of America analyst Kash Rangan said Workday is a cloud enterprise resource management leader with a positive outlook and an attractive valuation.
“We lower our estimates based on FY21E guide, which we believe is the base case with promising upside opportunity,” Rangan wrote in a note.
Canaccord Genuity analyst Richard Davis said Workday has been both an exciting and frustrating investment.
“It is great to see a firm with clearly superior software displace the cold, dead hand of ancient HR, financial systems and now procurement. However, there is no question that the Financials rollout has taken longer to scale up than almost anyone would have guessed a few years ago,” Davis wrote.
Mizuho analyst Siti Panigrahi said he is still bullish on Workday’s growth and margin expansion opportunities despite its weak 2021 guidance.
“Management's relatively positive commentary about the macro environment should alleviate investors' concerns,” Panigrahi wrote.
Conservatism Or Maturation?
Wedbush analyst Steve Koenig said the soft 2021 guidance has lowered “exuberant” Wall Street expectations.
“The tepid guide could be due to conservatism, but the tempering of expectations on the company’s primary metric points to deceleration on core fundamentals – most likely in HCM— unless the company posts unusually large upside,” Koenig wrote.
Baird analyst Mark Marcon said guidance likely reflects the maturation of Workday’s core domestic enterprise human capital management business.
“While [the] stock can be volatile, we like long-term positioning (early days in financials transition to cloud), client satisfaction/revenue retention (over 100% net), gross margin profile, and franchise value,” Marcon wrote.
Ratings And Price Targets
- Bank of America has a Buy rating and $260 target.
- Canaccord Genuity has a Buy rating and $200 target.
- Mizuho has a Buy rating and $225 target.
- Wedbush has a Neutral rating and $190 target.
- Baird has an Outperform rating and $210 target.
Workday’s post-earnings sell-off is indicative of the high bar growth stocks like Workday must consistently clear to justify their valuation. Investors should keep an eye on early fiscal 2021 numbers to see if soft guidance is a reflection of management conservatism or if it is a sign that Workday’s growth is moderating.
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