Workday Earnings: Solid Close to the Year, With Strong Execution in AI and Margin Expansion

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.