Why Is Workday (WDAY) Down 6% Since Last Earnings Report?
It has been about a month since the last earnings report for Workday (WDAY). Shares have lost about 6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Workday due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Workday Q4 Earnings Beat Estimates on Higher Revenues
Workday reported solid fourth-quarter fiscal 2024 results, with the bottom and the top line surpassing the respective Zacks Consensus Estimate.
The company reported revenue growth year over year, driven by solid customer wins across various industries, including education, financials, healthcare and more. Strategic expansions and strong contract renewals within the existing customer base also drove the top line. Management’s strong focus on innovations, AI integration and international expansion are positive factors.
Net Income
Net income on a GAAP basis was $1.18 billion or $4.42 per share against a net loss of $126 million or a loss of 49 cents per share in the year-ago quarter. The year-over-year top-line expansion boosted the net income.
Non-GAAP net income rose to $421 million or $1.57 per share from $256 million or 99 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 13 cents.
In fiscal 2024, the company reported a GAAP net income of $1.38 billion or $5.21 per share against a loss of $367 million or a loss of $1.44 per share in fiscal 2023. In fiscal 2024, non GAAP net income rose to $1.54 billion or $5.84 per share from $949 million or $3.64 per share in the prior year.
Revenues
Net sales during the quarter were $1.92 billion, up from $1.64 billion in the year-ago quarter, backed by rising demand for the company’s HCM (Human Capital Management) and financial management solution. The top line surpassed the Zacks Consensus Estimate by $9 million.
In fiscal 2024, the company reported $7.25 billion in revenues compared with $6.21 billion in fiscal 2023.
The strong revenue growth accentuates the diversity and robustness of Workday’s product portfolio. Along with several new customer wins, the company also witnessed several strategic expansions and contract renewals within its existing customer base. New customers, including HHS, Randstad, Australian Stock Exchange, Boyd Gaming Corporation, UHS of Delaware and VXI Global Solutions, selected the full platform of Workday HCM and financial management products.
Many enterprise customers of Workday’s HCM products, including Huntington Bank, Intermountain Health and Stewart Title Guaranty, opted to deploy the financial management solution. In healthcare, the company witnessed strong growth in ACV bookings. In education, it secured multiple deal wins with various institutions such as Oregon State University, Portland Community College and more.
Subscription services revenues contributed $1.76 billion, up from $1.49 billion in the year-ago quarter. Net sales surpassed our estimate of $1.75 billion. At the end of the quarter, the 12-month subscription revenue backlog was $6.62 billion, up 20% backed by higher contract renewals.
Revenues from professional services were $162 million compared with $150 million in the prior-year quarter. The top line beat our estimate of $158 million.
Other Details
Operating income during the quarter was $79 million against an operating loss of $89 million in the year-ago quarter. Non-GAAP operating income was $461 million, up from $305 million a year ago, with respective margins of 23.9% and 18.5%.
Cash Flow & Liquidity
During the fourth quarter of fiscal 2024, the company generated $996 million of cash from operating activities compared with $694 million in the prior-year quarter. In fiscal 2024, the company generated $2.14 billion of cash from operations compared with $1.65 billion in fiscal 2023.
As of Jan 31, 2024, it had cash and cash equivalents and marketable securities of $7.8 billion with long-term debt of $2.98 billion compared with respective figures of $6.12 billion and $2.97 billion.
Outlook
For fiscal 2025, the company expects subscription revenues in the range of $7.725 billion to $7.775 billion, suggesting growth of 17% to 18% year over year. Professional services revenues are expected to be about $630-$640 million. The non-GAAP operating margin is projected to be 24.5%. Capital expenditure is approximated to be around $330 million.
For the first quarter of fiscal 2025, Workday expects Subscription services revenues to be $1.81 billion. Revenues from Professional services are estimated to be $163 million. For the fiscal first quarter, the non-GAAP operating margin is approximated to be 24.5%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
The consensus estimate has shifted -14.68% due to these changes.
VGM Scores
Currently, Workday has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Workday has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Workday belongs to the Zacks Internet - Software industry. Another stock from the same industry, Twilio (TWLO), has gained 5.1% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
Twilio reported revenues of $1.08 billion in the last reported quarter, representing a year-over-year change of +5%. EPS of $0.86 for the same period compares with $0.22 a year ago.
For the current quarter, Twilio is expected to post earnings of $0.59 per share, indicating a change of +25.5% from the year-ago quarter. The Zacks Consensus Estimate has changed +12.3% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Twilio. Also, the stock has a VGM Score of B.
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