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Why Is Workday (WDAY) Up 3.9% Since Last Earnings Report?
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A month has gone by since the last earnings report for Workday (WDAY - Free Report) . Shares have added about 3.9% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Workday due for a pullback? 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 catalysts.
Workday reported strong third-quarter fiscal 2024 results, with the bottom and the top line surpassing the respective Zacks Consensus Estimate. The company reported a top-line expansion year over year. Solid demand for its financial and human capital management (HCM) solutions in various end markets, including energy, automotive, transport, consumer packaging and healthcare, are key growth drivers. The ongoing investment initiatives in Japan to expand its market opportunity in the region is a positive. Focus on AI incorporation and introduction of AI-native products such as Workday AI Marketplace acted as a tailwind.
Net Income
Net income on a GAAP basis was $113.7 million or 43 cents per share against a net loss of $74.7 million or a loss of 29 cents per share in the year-ago quarter. The year-over-year growth was primarily due to higher revenues as the strategy to incorporate AI into the core of its products resonated well with the customers.
Non-GAAP net income rose to $407.8 million or $1.53 per share from $257.9 million or 99 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 13 cents.
Revenues
Net sales during the quarter were $1,865.7 million, up from $1,599.1 million and surpassed the Zacks Consensus Estimate by $21 million. Growing adoption of cloud financial and HCM products boosted the top line.
In the current macroeconomic situation, enterprises are looking to scale and drive productivity in their operations. Workday successfully capitalizes on these trends as businesses continue to leverage its solutions to reskill and upskill the workforce and augment employee experience, reducing attrition. Management initiatives to infuse generative AI and conversational AI features in Workday solutions also yielded positive results. Developers are utilizing Workday AI services in Workday Extend to build intelligent applications on the Workday Platform, which are streamlining business processes and enhancing decision-making.
Workday is witnessing increasing market traction for its HCM solutions. Backed by multiple new customer wins, such as Greene King Brewing, Group 1 Automotive and the U.S. Department of Energy, it crossed 5,000 customers for its HCM product suite. Additionally, the company also secured several contract renewals and expansions with industry leaders such as Mondelez Global, Sonoco Products Company, BBVA, Carl Zeiss and Southwest Airlines. Strong new ACV bookings enable Workday to surpass the $1 billion ARR (annual recurring revenue) in the EMEA region.
Subscription services revenues totaled $1,691.1 million, up from $1,432.4 million in the year-ago quarter. Net sales surpassed our revenue estimate of $1,678.5 million. At the end of the quarter, the 24-month subscription revenue backlog improved 23% to $10.58 billion. The growth was primarily driven by increased contract renewals.
Revenues from professional services were $174.6 million compared with $166.7 million in the prior-year quarter. The top line beat our revenue estimate of $165.1 million.
Other Details
Operating income during the quarter was $87.9 million against an operating loss of $26.3 million in the year-ago quarter. Non-GAAP operating income was $462.1 million, up from $314.2 million a year ago, with respective margins of 24.8% and 19.7%.
Cash Flow & Liquidity
During the third quarter of fiscal 2024, the company generated $450.8 million of cash from operating activities compared with $408.7 million in the prior-year quarter. As of Oct 31, 2023, it had cash and cash equivalents and marketable securities of $6.88 billion with long-term debt of $2,978.8 million.
Outlook
For fiscal 2024, the company raised its guidance for subscription revenues to $6,598 billion from the previously estimated range of $6.570-$6.590 billion, indicating growth of 19% year over year. Professional services revenues are expected to be $652 million. The non-GAAP operating margin is projected to be 23.8%, up from the prior estimation of 23.5%. Capital expenditure is approximated to be around $250 million.
For the fourth quarter of fiscal 2024, Workday expects Subscription services revenues to be $1.755 billion. Revenues from Professional services are estimated to be $158 million. For the fiscal fourth quarter, the non-GAAP operating margin is approximated to be 23.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
The consensus estimate has shifted 10.35% due to these changes.
VGM Scores
Currently, Workday has a great Growth Score of A, a grade with the same score on the momentum front. However, 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 B. 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. It comes with little surprise Workday has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Workday is part of the Zacks Internet - Software industry. Over the past month, Sea Limited Sponsored ADR (SE - Free Report) , a stock from the same industry, has gained 8.9%. The company reported its results for the quarter ended September 2023 more than a month ago.
Sea Limited Sponsored ADR reported revenues of $3.45 billion in the last reported quarter, representing a year-over-year change of +18%. EPS of $0.06 for the same period compares with -$0.66 a year ago.
Sea Limited Sponsored ADR is expected to post earnings of $0.23 per share for the current quarter, representing a year-over-year change of -81.6%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Sea Limited Sponsored ADR. Also, the stock has a VGM Score of F.
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Why Is Workday (WDAY) Up 3.9% Since Last Earnings Report?
A month has gone by since the last earnings report for Workday (WDAY - Free Report) . Shares have added about 3.9% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Workday due for a pullback? 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 catalysts.
Workday Q3 Earnings Beat Estimates, Revenues Surge Y/Y
Workday reported strong third-quarter fiscal 2024 results, with the bottom and the top line surpassing the respective Zacks Consensus Estimate. The company reported a top-line expansion year over year. Solid demand for its financial and human capital management (HCM) solutions in various end markets, including energy, automotive, transport, consumer packaging and healthcare, are key growth drivers. The ongoing investment initiatives in Japan to expand its market opportunity in the region is a positive. Focus on AI incorporation and introduction of AI-native products such as Workday AI Marketplace acted as a tailwind.
Net Income
Net income on a GAAP basis was $113.7 million or 43 cents per share against a net loss of $74.7 million or a loss of 29 cents per share in the year-ago quarter. The year-over-year growth was primarily due to higher revenues as the strategy to incorporate AI into the core of its products resonated well with the customers.
Non-GAAP net income rose to $407.8 million or $1.53 per share from $257.9 million or 99 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 13 cents.
Revenues
Net sales during the quarter were $1,865.7 million, up from $1,599.1 million and surpassed the Zacks Consensus Estimate by $21 million. Growing adoption of cloud financial and HCM products boosted the top line.
In the current macroeconomic situation, enterprises are looking to scale and drive productivity in their operations. Workday successfully capitalizes on these trends as businesses continue to leverage its solutions to reskill and upskill the workforce and augment employee experience, reducing attrition. Management initiatives to infuse generative AI and conversational AI features in Workday solutions also yielded positive results. Developers are utilizing Workday AI services in Workday Extend to build intelligent applications on the Workday Platform, which are streamlining business processes and enhancing decision-making.
Workday is witnessing increasing market traction for its HCM solutions. Backed by multiple new customer wins, such as Greene King Brewing, Group 1 Automotive and the U.S. Department of Energy, it crossed 5,000 customers for its HCM product suite. Additionally, the company also secured several contract renewals and expansions with industry leaders such as Mondelez Global, Sonoco Products Company, BBVA, Carl Zeiss and Southwest Airlines. Strong new ACV bookings enable Workday to surpass the $1 billion ARR (annual recurring revenue) in the EMEA region.
Subscription services revenues totaled $1,691.1 million, up from $1,432.4 million in the year-ago quarter. Net sales surpassed our revenue estimate of $1,678.5 million. At the end of the quarter, the 24-month subscription revenue backlog improved 23% to $10.58 billion. The growth was primarily driven by increased contract renewals.
Revenues from professional services were $174.6 million compared with $166.7 million in the prior-year quarter. The top line beat our revenue estimate of $165.1 million.
Other Details
Operating income during the quarter was $87.9 million against an operating loss of $26.3 million in the year-ago quarter. Non-GAAP operating income was $462.1 million, up from $314.2 million a year ago, with respective margins of 24.8% and 19.7%.
Cash Flow & Liquidity
During the third quarter of fiscal 2024, the company generated $450.8 million of cash from operating activities compared with $408.7 million in the prior-year quarter. As of Oct 31, 2023, it had cash and cash equivalents and marketable securities of $6.88 billion with long-term debt of $2,978.8 million.
Outlook
For fiscal 2024, the company raised its guidance for subscription revenues to $6,598 billion from the previously estimated range of $6.570-$6.590 billion, indicating growth of 19% year over year. Professional services revenues are expected to be $652 million. The non-GAAP operating margin is projected to be 23.8%, up from the prior estimation of 23.5%. Capital expenditure is approximated to be around $250 million.
For the fourth quarter of fiscal 2024, Workday expects Subscription services revenues to be $1.755 billion. Revenues from Professional services are estimated to be $158 million. For the fiscal fourth quarter, the non-GAAP operating margin is approximated to be 23.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
The consensus estimate has shifted 10.35% due to these changes.
VGM Scores
Currently, Workday has a great Growth Score of A, a grade with the same score on the momentum front. However, 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 B. 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. It comes with little surprise Workday has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Workday is part of the Zacks Internet - Software industry. Over the past month, Sea Limited Sponsored ADR (SE - Free Report) , a stock from the same industry, has gained 8.9%. The company reported its results for the quarter ended September 2023 more than a month ago.
Sea Limited Sponsored ADR reported revenues of $3.45 billion in the last reported quarter, representing a year-over-year change of +18%. EPS of $0.06 for the same period compares with -$0.66 a year ago.
Sea Limited Sponsored ADR is expected to post earnings of $0.23 per share for the current quarter, representing a year-over-year change of -81.6%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Sea Limited Sponsored ADR. Also, the stock has a VGM Score of F.