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Why Is Workday (WDAY) Down 5.3% Since the Last Earnings Report?

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More than a month has gone by since the last earnings report for Workday, Inc. (WDAY - Free Report) . Shares have lost about 5.3% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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 catalysts.

Recent Earnings

Workday reported better-than-expected fiscal second-quarter 2018 results. The company’s non-GAAP earnings of 24 cents per share beat the Zacks Consensus Estimate of 15 cents.

Revenues of $525.3 million increased 39.1% year over year and beat the consensus mark of $507.4 million. The figure was much better than the guided range of $505–$508 million.

Subscription revenues (82.7% of total revenue) soared 42% year over year to $434.5 million, driven by strong net new customer wins and renewals. The figure surpassed the guided range of $420–$432 million. Professional services revenues (17.3% of total revenue) grew 34% from the year-ago quarter to $91 million and were better than the guided figure of $85 million.

Geographically, revenues outside the United States (20% of total revenue) increased 59% to $106 million, which is indicative of the company’s growing international foothold. Reportedly, Munich Germany-based manufacturing giant Siemens replaced their current HR system with Workday HCM. Additionally, in Europe and Asia Pacific’s Japan region, the company added Shell and Johnson Electric, respectively as customers.

Operating Results

The company reported non-GAAP operating income of $49 million compared with $6.1 million in the prior-year quarter.

Non-GAAP operating margin expanded 770 basis points (bps) from the year-ago quarter to 9.3%.

Balance Sheet

Workday exited the quarter with total cash and cash equivalents (including marketable securities) of $2.01 billion compared with nearly $2.0 billion as on Jan 31, 2017.

Workday’s cash from operating activities for the quarter ended Jul 31, 2017 was $15.1 million compared with $6.5 million in the year-ago period.

The company’s free cash outflow was $23.4 million in the quarter, greater than an outflow of $20 million in the prior-year quarter.

Outlook

For fiscal third-quarter 2018, Workday expects revenues in the range of $538-$540 million. Subscription revenues are anticipated in the range of $450-$452 million, while professional services revenue expectation is $88 million.

Workday anticipates non-GAAP operating margin to decline sequentially and be in the range of 5-6%.

Buoyed by the encouraging first-half results, the company raised its guidance for fiscal 2018. Revenues are anticipated to be in the range of $2.093-$2.1 billion, up from the prior guidance of $2.04-$2.05 billion. The company now expects non-GAAP operating margin for the full year to be 8%, up from the previous guidance of 6-7%.

Additionally, Workday now projects subscription revenues to be between $1.750 billion and $1.757 billion compared with the prior guidance of $1.705 billion to $1.720 billion. Professional services revenues are anticipated to be about $343 million in fiscal 2018.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter.

Workday, Inc. Price and Consensus

 

Workday, Inc. Price and Consensus | Workday, Inc. Quote

VGM Scores

At this time, the stock has a nice Growth Score of B, 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 lowest quintile 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.

Our style scores indicate that the stock is equally suitable for momentum and growth investors.

Outlook

Estimates have been trending upward for the stock and the magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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