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What's in Store for Workday (WDAY) Stock in Q2 Earnings?

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Workday, Inc. (WDAY - Free Report) is set to report second-quarter 2019 results on Sep 4. Notably, the company has surpassed the Zacks Consensus Estimate in the trailing four quarters, recording an average positive surprise of 45.1%.

In the last reported quarter, the company delivered non-GAAP earnings of 33 cents per share, beating the Zacks Consensus Estimate of 26 cents. The figure also improved 13.8% year over year.

Strong growth can primarily be attributed to 28.9% jump in revenues, which totaled $618.6 million. The figure surpassed the Zacks Consensus Estimate for revenues of $609 million. The robust top-line performance was driven by solid growth in subscription and professional revenues.

What to Expect

The Zacks Consensus Estimate for the quarter under review is pegged at 26 cents, up 8.3% year over year. Further, the Zacks Consensus Estimate for revenues is pegged at $663.1 million, up roughly 26.2% from the year-ago quarter.

Workday’s shares have gained 51.2% on a year to date basis, substantially outperforming the industry’s rally of 27.4%.

Let’s see how things are shaping up prior to this announcement.

Factors Likely to Impact Q2 Results

Workday extended capabilities and tools in Workday HCM with new customer experience.

Workday has more than 2,200 customers. During the last reported quarter, the company added Inter IKEA Services, Great Lakes, Tyson Shared Services and Unisys Corporation as its new HCM customers. The clientele now includes two Fortune 500 customers, one of which is a Fortune 100 company. Some other new financial management customers include Sprouts Farmers Market, Rivera and Race Truck Petroleum, one of the largest private companies in the United States.

Further, Aon, an HCM customer in 2013, became live on financial management in 28 countries, including Australia, Canada, Mexico, New Zealand and the United States.

The company announced the availability of new data discovery capabilities in Workday Prism Analytics and Workday Cloud Platform, the first offering delivered on Workday Data-as-a-Service, during the quarter under review.

Workday was placed in the Leaders quadrant of “Magic Quadrant for Cloud Core Financial Management Suites for Midsize, Large, and Global Enterprises” by Gartner.

Workday announced partnership with Slack to aid customers in completing tasks more efficiently and effectively by engaging with Workday from within the Slack interface. This will enhance security and improve functionality of Workday’s user interface.

The company also signed an agreement to acquire all outstanding shares of Adaptive Insights. The purchase is likely to aid Workday pursue its goal of emerging as an industry leader in better business decisions, operational expertise and evolve as a provider of enterprise-level software solutions for financial management as well as human resource domains. Together with Adaptive Insight, Workday aims to better plan, execute and help organizations to drive their financial and business changes.

Workday also partnered Duo Security and SkipFlag. We believe improving customer satisfaction rate and recent buyouts bodes well for the company’s growth in the near term.

However, intensifying competition from peers and higher marketing expenditure are major headwinds in the near term.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The sell-rated stocks (Zacks Rank #4 or 5) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Workday has a Zacks Rank #2 and an Earnings ESP of 0.00%.

Stocks With a Favorable Combination

Here are some companies, which as per our model, have the right combination of elements to post an earnings beat this quarter:

Oxford Industries, Inc. (OXM - Free Report) has an Earnings ESP of +0.41% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Adobe Systems Incorporated (ADBE - Free Report) has an Earnings ESP of +0.25% and a Zacks Rank #3.

Marvell Technology Group Ltd. (MRVL - Free Report) has an Earnings ESP of +0.39% and a Zacks Rank #3.

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