Workday's Loss Narrows in 1Q
Enterprise cloud applications provider for human resource and finance, Workday Inc. (WDAY) reported first-quarter 2014 loss per share of 15 cents, considerably narrower than loss per share of 57 cents reported in the prior-year quarter.
Including share-based compensation of 5 cents, loss per share came in at 20 cents per share and was better than the Zacks Consensus Estimate of a loss of 23 cents per share.
Quarter Details
Revenues surged 61.3% from the year-ago quarter to $91.6 million. Subscription revenues (74.7% of revenues) soared 85.3% year over year to $68.4 million in the quarter. Professional revenues (25.3% of revenues) increased 16.7% year over year to $23.2 million.
Workday ended the first quarter with more than 450 customers in total, of which 290 are live on Workday applications. Workday added companies and institutions such as Bristol-Myers Squibb, Levi Strauss and University of Miami as its clients during the quarter.
Most of the contracts signed during the quarter were of just over three years in duration. Total unearned revenues at quarter end increased 41.0% year over year to $285.0 million.
During the quarter, Workday applications were deployed for customers such as Johnson & Johnson (JNJ), London Stock Exchange and Cornell University. Notably, in April all customers moved to Workday 19, the company’s latest update. Workday also launched a mobile application for Google’s (GOOG) Android operating system that is currently on Google Play.
Operating expenses rose sharply to $87.6 million from $51.7 million reported in the year-ago quarter due to a 113.2% increase in general & administrative expense, 74.6% rise in research & development expense and a 54.5% jump in sales & marketing expense.
As a result of higher operating expenses, Workday reported operating loss (including share- based compensation) of $32.6 million, wider than a loss of $20.0 million in the year-ago quarter. Net loss (including stock-based compensation) was $33.0 million compared with $20.0 million loss in the year-ago quarter.
Cash & cash equivalents and marketable securities were $805.8 million compared with $790.3 million in the previous quarter. Cash from operations during the quarter was $17.3 million.
Guidance
For second quarter 2014, total revenue is expected in the range of $97.0 million to $101.0 million. Subscription revenues are expected between $74.0 million and $76.0 million.
Workday expects macroeconomic challenges to remain and IT spending to be muted in 2014. Workday expects the revenue mix to shift toward subscriptions.
For fiscal 2014, Workday expects revenues to be in the range of $425.0 million to $440.0 million. Professional revenues are projected to be approximately in the range of $100.0 to $105.0 million. Annual billings are expected to be within $530.0 million for fiscal 2014.
Recommendation
We believe that Workday’s innovative product pipeline will help it to gain significant footprint in the human resource and finance markets. However, we believe that the company will face serious competition from large established players such as Oracle (ORCL) in both of its operational markets. This cut-throat competition and increasing investments in product development and personnel cost will hurt profitability going forward.
Currently, Workday has a Zacks Rank #3 (Hold).
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