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Workday's 35% Surge to Record Faces Key Test on Finance Results

Jeran Wittenstein
Workday's 35% Surge to Record Faces Key Test on Finance Results

(Bloomberg) -- While Workday Inc. is best known for its human resources software, Wall Street’s focus will be on the momentum behind its finance products when the company reports earnings Tuesday afternoon.

The bulk of Workday’s revenue still comes from the cloud-based HR suite, but sales of its financial-management applications have been picking up. Expectations for even more growth have helped drive a 35% surge in the shares this year to a record high. Large companies have begun seeking Workday out for its finance software rather than starting with its HR offering, Chief Executive Officer Aneel Bhusri said on the fourth-quarter earnings call. Investors are looking for signs that will continue.

“In order for WDAY shares to keep working investors need something to look forward to on the financials side,” Oppenheimer analyst Brian Schwartz wrote in a research note, referring to Workday by its ticker symbol.

Workday is among a group fast-growing software-as-a-service companies that have the added benefit of being less affected by U.S.-China trade tension, making them attractive to investors who have been willing to pay ever higher prices for their stocks. Workday, which has more than tripled since the start of 2017, trades at about 14 times estimated sales. That compares with a multiple of 9 for the S&P 500 Application Software Index.

Workday doesn’t break out sales from HR products versus finance in its earnings report. Instead, analysts will be looking for comments on customer wins and other color from executives on the conference call, scheduled for 4:30 p.m. New York time.

Recent trends seen in the company’s distribution channel have made Wedbush more bullish on Workday’s growth. The Pleasanton, California-based company should report “solid results” driven by continued strength in finance, wrote analyst Steve Koenig, who is neutral on the stock due to valuation.

What Bloomberg Intelligence Says

The company’s core HR and financial planning suites should see steady demand after reporting almost a 30% subscription sales backlog in 4Q. Commentary regarding new clients and upselling opportunities is likely. Strong sales should offset some key product-development investments, leaving margin fairly flat.

--Anurag Rana, technology analystClick here to view the research.

Just the Numbers

1Q adjusted EPS estimate 41c (range 36c to 47c) 1Q revenue estimate $814.4 million (range $812.0 million to $825.0 million) FY revenue estimate $3.56 billion (range $3.54 billion to $3.62 billion)

Data

1Q adjusted EPS estimate 41c (range 36c to 47c) (Bloomberg data).1Q revenue estimate $814.4 million (range $812.0 million to $825.0 million) (BD) FY revenue estimate $3.56 billion (range $3.54 billion to $3.62 billion) (BD)

Timing

Earnings release expected May 28 after market close Conference call website

To contact the reporter on this story: Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Richard Richtmyer

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