A month has gone by since the last earnings report for Workday (WDAY Quick QuoteWDAY - Free Report) . Shares have lost about 2.9% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Workday Q3 Earnings Beat on Solid Revenues

Workday reported strong third-quarter fiscal 2023 results (ended Oct 31, 2022), with the bottom line and top line beating the consensus estimate. With solid demand trends, the company is confident about its growth opportunities for fiscal 2023. It plans to focus on higher investments in key industries and innovation efforts to expand its footprint within the partner ecosystem.

Backed by the healthy quarterly performance, management updated guidance for fiscal 2023. These buoyed investor sentiments as share prices soared 17.2% post earnings release to close at $167.90 on Nov 30, 2022.

Quarter Details

Net loss in the reported quarter was $74.7 million or a loss of 29 cents per share against net income of $43.4 million or 17 cents per share in the prior-year quarter. Despite top-line growth, higher operating expenses led to a loss during the quarter. Non-GAAP net income was $257.9 million or 99 cents per share compared with $286.6 million or $1.10 per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 15 cents.

Total revenues in the quarter improved to $1,599.1 million from $1,327.3 million in the prior-year quarter, driven by higher digital transformation initiatives across Finance and HR domains in tune with the evolving market conditions. The top line outpaced the Zacks Consensus Estimate of $1,580 million. Subscription services revenues were $1,432.4 million compared with $1,171.5 million a year ago, while Professional services revenues increased to $166.7 million from $155.7 million in the prior-year quarter.

Operating Details

Operating loss during the quarter was $26.3 million against operating income of $23.9 million in the prior-year quarter. Non-GAAP operating income was $314.2 million for an operating margin of 19.7% compared with respective tallies of $332.2 million and 25% in the year-earlier quarter.

Cash Flow & Liquidity

During the first nine months of fiscal 2023, WDAY generated $962.7 million of cash from operating activities compared with $1,035.6 million in the prior-year period. As of Oct 31, 2022, the company had cash and cash equivalents and marketable securities of $5,492.1 million with long-term debt of $2,975 million.

Guidance

With continued momentum in its business, the company updated its earlier guidance for fiscal 2023. Subscription revenues for the fiscal year are currently projected to be in the band of $5,555-$5,557 compared with earlier expectations of $5,537-$5,557 million. Professional services revenues are expected to be around $650 million. Non-GAAP operating margin is projected to be 19.2%, up from prior expectations of 19%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -6.16% due to these changes.

VGM Scores

At this time, Workday has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Workday has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.