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Workday's Q3 Loss Narrows, Rev Up

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Enterprise cloud applications provider for human resource and finance, Workday Inc. (WDAY - Free Report) reported fiscal third-quarter 2014 loss of 23 cents per share, narrower than the Zacks Consensus Estimate of a loss of 26 cents per share.

Quarter Details

Revenues surged 76.1% from the year-ago quarter to $127.9 million, which surpassed the Zacks Consensus Estimate of $118.0 million. Subscription revenues (73.5% of revenues) soared 82.1% year over year to $93.9 million in the quarter. Professional revenues (26.5% of revenues) increased 61.3% year over year to $33.9 million.

The subscription revenue of the company includes the service provided to more than 550 customers. The professional services business has been able to maximize its customer satisfaction and is therefore a primary revenue growth driver.

The new contracts signed have a weighted average duration of approximately 3.4 years. Moreover, the company’s focus on aggressively selling its products has paid rich dividends and is reflected in the sales growth of the company. Additionally, the high renewal rates as well as shorter term contracts are beneficial for the company in the long run.

Operating expenses rose sharply to $119.7 million from $83.3 million reported in the year-ago quarter due to a 75.8% increase in R&D expense and 65.9% rise in sales & marketing expense, although General & Administrative expense declined 28.1%.

As a result of higher operating expenses, Workday reported an operating loss (including share- based compensation) of $40.4 million, narrower than a loss of $40.9 million in the year-ago quarter. Net loss (including stock-based compensation) was $40.9 million or 23 cents per share, up from a loss of $30.1million or 49 cents per share in the year ago period.

Cash & cash equivalents and marketable securities were $1.28 billion compared with $1.29 billion in the previous quarter. Cash provided by operating activity during the quarter was $7.1 million.


For fiscal fourth quarter 2014, revenues are expected in the range of $133.0 million to $138.0 million or growth of 63% to 69% compared to the prior year. Subscription revenues are expected to be in the range of $105 million to $108 million, resulting in a year-over-year growth of 76% to 81%.


Workday reported narrower-than-expected loss in the third quarter of fiscal 2014. 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 Corp (ORCL - Free Report) , Automatic Data Processing, Inc. (ADP - Free Report) and SAP AG (SAP - Free Report) in both of its operational markets.

Currently, Workday has a Zacks Rank #3 (Hold).

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