While investors originally panned Workday Inc.’s latest earnings, the stock was moving higher in Thursday’s extended session after the finance and human-resources software company unveiled a new long-term outlook.
The company Workday expects 15% annual subscription-revenue growth in each of fiscal 2026 and fiscal 2027, and management is also looking for an expansion of adjusted operating margins to 30% over the same period. For context, Workday posted a 24.9% margin on the metric in its fiscal second quarter that just wrapped up.
“Our focus remains leveraging the power of the platform to deliver durable, long-term, top- and bottom-line growth,” Chief Financial Officer Zane Rowe said on the company’s earnings call.
Workday shares were up nearly 11% in Thursday’s after-hours action, after initially falling when the results came out and during the earlier portion of Workday’s call.
Evercore ISI analyst Kirk Materne said in a preview of Workday’s earnings that such a forecast could make Workday shares more attractive to growth-at-a-reasonable-price investors, while potentially driving multiple expansion. He had thought the new forecast might arrive at its September analyst day, rather than today.
“In our view, an updated forecast at the analyst day that aims for mid-teens subscription growth (~14-16%) and [operating] margins of 30%+ by the end of FY27 (2026) is a more realistic and sustainable investment narrative,” Materne wrote in a preview earlier this week. A profile of that nature would enable Workday to generate about 20% growth on the basis of free cash flow per share.
Chief Executive Carl Eschenbach said Thursday that Workday continued to see elevated deal scrutiny in the latest quarter, as well as more moderate growth in headcount among its customers. Still, he thinks the company’s finance and human-resource software products are resonating as they allow customers to become more productive.
“We see an opportunity to exponentially increase the value to our customers by reimagining end-to-end HR and finance processes through the power of AI,” Eschenbach said.
The software company posted fiscal second-quarter net income of $132 million, or 49 cents a share, compared with $79 million, or 30 cents a share, in the year-earlier period. On an adjusted basis, Workday earned $1.75 a share, up from $1.43 a share the year before and above the FactSet analyst consensus, which was for $1.65 a share.
Revenue at Workday increased to $2.09 billion from $1.79 billion, whereas analysts were looking for $2.07 billion.
The company generated $1.903 billion in subscription revenue, along with $182 million in professional-services revenue. Analysts expected $1.897 billion and $175 million, respectively.
Workday slightly boosted its full-year outlook for adjusted operating margin. That now calls for 25.25%, up from 25% previously.
For the fiscal third quarter, Workday anticipates $1.955 billion in subscription revenue, while the FactSet consensus called for $1.966 billion.
Mizuho analyst Siti Panigrahi noted that while the latest results were “solid,” Workday kept its subscription-revenue outlook intact for the full year. The company continues to expect $7.7 billion to $7.725 billion in subscription revenue for the period.
On the revenue front, Rowe noted that while issues like moderated headcount expansion among Workday customers are expected to persist, the company is still upbeat about margin trends.
“We now expect to deliver greater margin expansion than previously planned,” the CFO said. “Investing to support durable growth remains a core focus, and at the same time, we’ve made progress driving efficiencies as we continue to scale the business globally.”
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