Company Reports

Wide-moat Workday posted solid fourth-quarter results that were above our expectations for revenue and adjusted earnings per share. The acceleration of artificial intelligence demand and use cases has put Workday in a strong position to capitalize on its existing AI integrations, with particular interest in talent acquisition. Furthering the firm’s AI strategy is its announced acquisition of HiredScore, a provider of AI-powered talent orchestration solutions. We think this acquisition makes sense based on Workday’s existing AI prowess and should not pose a material integration risk. Management reiterated its fiscal 2025 outlook, which includes stable macroeconomic conditions throughout the year. We see slower-than-expected backlog growth as somewhat cautionary within results but believe this is transitory. We raise our fair value estimate to $285 per share from $245 to account for slightly higher margin assumptions based on continued strong execution. We see shares as fairly valued.

We consider Workday to be a best-of-breed cloud-only platform for human capital management, or HCM, software. After debuting in 2005 as a first mover in the cloud HCM space at an ideal time—when enterprises were looking to make the move from on-premises to cloud software solutions—Workday has benefited from its timeliness as well as its high-quality product and reputation for smooth implementations. Now that customers have transitioned to a cloud solution with Workday, we think the possibility of another vulnerable event like the cloud migration that would leave Workday susceptible to customers switching, is unlikely. Instead, we see wide-moat Workday as having robust switching costs which, in our view, will only get stronger as the company builds off its core HCM offering.

Wide-moat Workday posted stellar third-quarter results which exceeded our top- and bottom-line GAAP expectations. We are maintaining our $245 fair value estimate, as our long-term projections remain largely unchanged. Shares popped 7% based upon the results and guidance, and we view shares as fairly valued after the recent run-up in technology stocks. We reiterate our belief that Workday will likely surpass SAP in global enterprise resource planning market share in a decade, with the expansion in AI use-cases and a robust opportunity in its cloud platform providing evidence of the firm’s runway for growth.

Workday’s shares plummeted 7% after hours upon analyst day 2027 targets revealed today, which came in under our and the market's expectations. However, we think that Workday is exercising substantial caution in its targets—especially when it comes to non-GAAP operating margins, as we see all the right levers to push profitability momentum ahead. In positive news, the afterhours drop brings the former 3-star stock into attractive 4-star territory—giving long-term investors a window of opportunity for exposure to this wide-moat name. We reiterate our $245 fair value estimate as well as our belief that Workday is well-positioned to benefit from the massive base of SAP and Oracle enterprise resource planning, or ERP, customers yet to migrate to cloud solutions.

We consider Workday to be a best-of-breed cloud-only platform for human capital management, or HCM, software. By debuting in 2005 as a first mover in the cloud HCM space at an ideal time—when enterprises were looking to make the move from on-premises to cloud software solutions—Workday has benefited from its timeliness as well as its high-quality product and reputation for smooth implementations. Now that customers have transitioned to a cloud solution with Workday, we think the possibility of another vulnerable event like the cloud migration that would leave Workday susceptible to customers switching, is unlikely. Instead, we see wide-moat Workday as having robust switching costs which, in our view, will only get stronger as the company builds off its core HCM offering.

We are raising our fair value estimate for wide-moat Workday to $245 from $229 after the firm reported second-quarter results which surpassed our top- and bottom-line GAAP expectations. Following strong results in the quarter, management raised its full-year outlook for subscription revenue and profitability. With shares up around 4% afterhours, we view the high-quality stock as fairly valued. We continue to believe Workday will surpass SAP in terms of the global enterprise resource planning market share in a decade, further supported by the firm building on its momentum in the quarter.

Wide-moat Workday's first quarter was solid, beating our top- and bottom-line GAAP expectations. We are reiterating our $229 fair value estimate upon the broad-based beat, as our long-term projections remain intact. With shares rising by 8% upon the beat, we are pleased to see that shares have now approached our fair value estimate—bringing the high-quality name within 3-star territory. We continue to believe Workday will be able to surpass SAP in terms of the global enterprise resource planning market share in a decade—and this quarter’s results indicates to us that the company is well on this path.

Wide-moat Workday posted solid fourth-quarter results, beating our expectations. Workday proved its value add even in the wake of more critical decision-making by its clients. Looking ahead, management is baking in a more neutral year based on overall uncertainty. While we have lowered our expectations for fiscal 2024 as a result, we share management’s sentiment that the company can return to 20%-plus top-line growth when the macro environment normalizes. In the meantime, we think Workday’s moat is helping the firm weather headwinds. For example, Workday claimed they did not see any significant price erosion on deals, which we think speaks to both a mix of its strong switching costs as well as it being early in newer enterprise resource planning, or ERP, capabilities leveraging artificial intelligence, or AI, and machine learning that are less commoditized.

We consider Workday to be a best-of-breed cloud-only platform for human capital management, or HCM, software. By debuting in 2005 as a first mover in the cloud HCM space at an ideal time—when enterprises were looking to make the move from on-premises to cloud software solutions—Workday has benefited from its timeliness as well as its high-quality product and reputation for smooth implementations. Now that customers have transitioned to a cloud solution with Workday, we think the possibility of another vulnerable event like the cloud migration that would leave Workday susceptible to customers switching, is unlikely. Instead, we see wide-moat Workday as having robust switching costs which, in our view, will only get stronger as the company builds off its core HCM offering.

On Dec. 20, Workday announced that co-CEO and board of directors member Chano Fernandez is stepping down immediately from both roles and Carl Eschenbach will be stepping in as co-CEO alongside Workday's remaining co-CEO, co-founder, and chair Aneel Bhusri. However, Workday does not plan to continue the co-CEO model for long. Starting in February 2024, Eschenbach is expected to transition to become the sole CEO of the company, while Bhusri will remain chair of the board.

Wide-moat Workday exceeded FactSet expectations in its third-quarter results for both the top and bottom line. Management adjusted the range of their full-year 2023 outlook and provided preliminary guidance for fiscal 2024, reflecting Workday’s strong win momentum amid macroeconomic uncertainty. We view Workday as the long-term winner within enterprise resource planning in the future, as we expect cloud-first ERP vendors to “rebundle” the ERP modules that they themselves broke up when they were founded, when they originally catered to one portion of the ecosystem. We balance near-term headwinds with our long-term thesis for Workday and maintain our fair value estimate of $229 per share. With shares trading around $155 after hours (up about 9% upon results), we think shares are attractive.

On Sept. 13, Workday hosted its financial analyst day, updating its total market size and its strategies to saturate more of it. We liked two strategies in particular, which were woven throughout the day’s events: increasing automation and prescriptive recommendations for users, and further developing industry specific capabilities. The latter is especially important, in our view, as deals with companies in core industries Workday specializes in are 50% greater in size, on average, than deals with clients in noncore industries. We think focus on further industry development with smarter capabilities enabled by AI will help Workday gain more share in its upped total addressable market. Workday highlighted that its total addressable market has grown by about 20% year over year to $125 billion plus from $105 billion—most of which is coming from human capital management, or HCM, growth, with particular opportunity in international and the medium enterprise (businesses with 3,500 employees or less). This implies less than 5% penetration today. With our confidence in Workday as strong as ever, we are maintaining our fair value estimate of $229 per share, which leaves shares quite attractive for the investor wanting the rare opportunity to buy shares of a wide-moat positive-trend company at a discount.

Wide-moat Workday is one of our top picks in the technology sector, as our fair value estimate of $229 per share offers significant upside for long-term investors in this rarely discounted high-quality name. We believe Workday’s business will be resilient in weaker macroeconomic times, as its software is mission critical to the day-to-day operations of its customers—from monitoring finances to managing hirings. We think the market is overlooking the degree to which Workday software is mission critical on an absolute and relative basis, as SAP and Oracle shares have fallen by far less over the last six months than Workday’s shares that declined by nearly 30%. The cornerstone of our confidence in Workday's long-term success lies in our wide-moat rating and positive moat trend, both of which are informed by robust switching costs. We note to investors that a wide moat, positive trend rating is rare across our coverage, which makes Workday shares even more compelling. For these reasons, we think the market provides an uncommon opportunity to buy Workday shares.

Wide-moat Workday well surpassed FactSet expectations in its second-quarter results as demand was described by management “as good as (they) could have hoped for” in the quarter. We think Workday is well-positioned to be the clear winner in the enterprise resource planning, or ERP, space in the future, as we expect cloud-first ERP vendors to “rebundle” the ERP modules that they themselves broke up when they were founded, originally catering to one portion of the ecosystem. Of such cloud-first vendors, Workday is well ahead of its peers in capabilities. We easily saw examples of such ERP rebundling in the quarter—as Workday posted a big win in taking over Salesforce’s financial management software. Not only is this good for Workday’s top line, but we think it’s fuel to increasing switching costs as its software will be even harder to move off of if customers rely on it for more functionalities.

We consider Workday to be a best-of-breed cloud-only platform for human capital management, or HCM, software. By debuting in 2005 as a first mover in the cloud HCM space at an ideal time—when enterprises were looking to make the move from on-premises to cloud software solutions—Workday has benefited from its timeliness as well as its high-quality product and reputation for smooth implementations. Now that customers have transitioned to a cloud solution with Workday, we think the possibility of another vulnerable event like the cloud migration that would leave Workday susceptible to customers switching, is unlikely. Instead, we see wide-moat Workday as having robust switching costs which, in our view, will only get stronger as the company builds off its core HCM offering.

We consider Workday to be a best-of-breed cloud-only platform for human capital management software. By debuting in 2005 as a first mover in cloud HCM at an ideal time—when enterprises were looking to make the move from on-premises to cloud software solutions—Workday has benefited from its timeliness as well as its high-quality product and reputation for smooth implementations. Now that customers have transitioned to a cloud solution with Workday, we think the possibility of another vulnerable event like the cloud migration that would leave the company susceptible to customer switching, is unlikely. Instead, we see wide-moat Workday as having robust switching costs which, in our view, will only get stronger as the company builds on its core HCM offering.

Wide-moat Workday's first quarter was a healthy one concerning reportable figures, though forward-looking metrics like backlog disappointed with several deal delays. Workday beat our top-line expectations while surpassing management's non-GAAP operating margin guide due to favorable timing of expenses.

Wide-moat Workday posted strong fourth-quarter results, with revenue beating both our and FactSet expectations and adjusted EPS falling in line with our expectations. Workday continued to recognize broad-based growth stemming from the sustained digital transformation by enterprises. Workday continues to achieve wins within its flagship human capital management vertical, now servicing over 70% of the financial services firms within the Fortune 500. With an increased customer landscape, it is paramount for Workday to gain clients and retain existing ones. In the quarter, Workday had growth re-acceleration and a net retention rate of over 100%. Workday continues to invest in its employee base by adding 1,000 employees in the fourth quarter bringing its employee total to over 15,200, up 21% year over year. Displaying its commitment to invest in employees, Workday has initiated a companywide performance-based cash bonus program, which we think will enable it to keep up its best-of-breed offerings, as we expect the headcount growth to lead to Workday's expansion further into the ERP portfolio.

Wide-moat Workday finished the third quarter in a solid fashion—with revenue and non-GAAP operating margins well surpassing FactSet consensus as well as our own expectations. Workday continues its outperformance streak thanks to broad-based results as COVID-caused business frictions serve as a waking call for enterprises to digitize their operations. With increased confidence, Workday rose its outlook for the year while also announcing the acquisition of VNDLY – which will help Workday build out its ERP capabilities further. Altogether, we are maintaining our fair value estimate for wide-moat Workday of $229 per share. We consider Workday to be overvalued, even with shares having fallen by roughly 9% in after hours trading to approximately $272 per share – as the fall wasn't enough to reverse some of the 30% plus growth the stock has experienced over the last six months.

Wide-moat Workday beat FactSet and our non-GAAP EPS expectations nicely in its second-quarter results thanks to even heartier digital acceleration of HR and finance software than Workday had forecast. With results came improved outlook for the year because of the surprisingly stronger momentum being seen. We think that the stronger growth expected for the year will moderate growth levels slightly in latter forecast years within our model. As a result, we are maintaining our fair value estimate for wide-moat Workday of $229 per share. We consider Workday to be fairly valued, as shares have risen by 6% to approximately $261 per share upon the news.