Company Reports

Workday's second-quarter total revenue grew 13% year over year to $2.65 billion. Non-GAAP operating margin of 31.1% expanded 210 basis points compared with a year ago. Annual recurring revenue, or ARR, from agentic AI is approaching $600 million, representing over 200% year-over-year growth.

Workday is a relatively new entrant to the enterprise resource planning market. However, the company was able to take market share from competitors by demonstrating that adopting cloud-native enterprise systems provides a superior user experience and reduces the total cost of ownership. As Workday continues to expand its ecosystem with third-party partners, we believe it operates the best-of-breed cloud-only solution for human capital management.

Workday maintained stable growth momentum in its fiscal 2027 first quarter. Total revenue rose 14% year over year to $2.5 billion, and non-GAAP operating margin expanded 160 basis points to an all-time high of 31.8%. Twelve-month subscription backlog growth of 16% was also healthy.

We have lowered our economic moat rating for Workday to narrow from wide following a review of artificial intelligence's potential disruption to the global technology sector.

Workday is a relatively new entrant to the enterprise resource planning market. However, the company was able to take market share from competitors by demonstrating that adopting cloud-native enterprise systems provides a superior user experience and reduces the total cost of ownership. As Workday continues to expand its ecosystem with third-party partners, we believe it operates the best-of-breed cloud-only solution for human capital management.

Workday delivered solid fourth-quarter revenue growth of 15% and non-GAAP operating margin of 31%. However, fiscal 2027 subscription revenue guidance of 13% and non-GAAP operating margin guidance of 30% both undershoot investor expectations, triggering a 9% after-hours selloff.

Workday is a relatively new entrant to the enterprise resource planning market. However, the company was able to take market share from competitors by demonstrating that adopting cloud-native enterprise systems provides a superior user experience and reduces the total cost of ownership. As Workday continues to expand its ecosystem with third-party partners, we believe it operates the best-of-breed cloud-only solution for human capital management.

Workday announced on Feb. 9 that Aneel Bhusri, its co-founder and executive chair, is returning as CEO, replacing Carl Eschenbach, who had served as CEO for the past three years. Stocks were down 6% in Feb. 9's intraday trading.

Workday's third-quarter subscription revenue growth of 15% was in line with our expectations. Recent labor market turbulence did not seem to affect Workday's growth trajectory, as the company reported a year-over-year net increase in headcount across its customer base.

Workday gave several updates during its Rising event, including more AI agents, a new data cloud, and the $1.1 billion acquisition of enterprise knowledge firm Sana. It also gave a midterm outlook for 13%-14% subscription growth and a 35% non-GAAP operating margin by fiscal 2028.

Workday is a relatively new entrant to the enterprise resource planning market compared with Oracle and SAP. However, the company was able to take market share from competitors by demonstrating that adopting cloud-native enterprise systems provides a superior user experience and reduces the total cost of ownership for modern enterprises. As Workday continues to expand its ecosystem with third-party partners, we believe it now operates the best-of-breed cloud-only solution for human capital management.

Workday's second-quarter revenue grew 13% year over year. Non-GAAP operating margin of 29% was 120 basis points lower sequentially, but in line with our expectations. Gross retention rate was stable at 97%, regardless of recent investor skepticism of AI's threat to seat-based enterprise software.

Wide-moat Workday reported first-quarter results that are in line with our expectations. Although Workday sees more client concentration than other enterprise software vendors, the uncertain macro environment did not meaningfully affect Workday’s performance. We are maintaining our $300 fair value estimate and view shares as moderately undervalued.

Workday is a relatively new entrant to the enterprise resource planning, or ERP, market compared with rivals Oracle and SAP. However, the company was able to take market share from competitors by demonstrating that adopting cloud-native enterprise systems provides a superior user experience and reduces total cost of ownership for modern enterprises. As Workday continues to hone the usability of its platform and build an ecosystem with third-party partners, we believe the company now operates the best-of-breed cloud-only solution for human capital management, or HCM.

We are transferring coverage of Workday and maintaining the company's wide moat rating. Workday sells cloud-native human capital management, or HCM, and financial management platforms that assist with enterprises' back-office workflows. These systems handle critical day-to-day operations data, and customers usually stay with the same vendor for decades. Workday boasts a gross retention rate of over 95% and has had a net retention rate of over 100% for more than seven years in a row, underpinning high switching costs that support a wide economic moat. We are maintaining the company's $300 fair value estimate and currently view shares as undervalued.

Wide-moat Workday's strong fourth-quarter results beat our expectations for the top and bottom line, driven by continued momentum in its full enterprise resource planning suite and broad-based demand for its artificial intelligence solutions. Workday’s AI strategy continues to gain traction, with significant focus on automation and intelligence through its role-based AI agents that are designed to enhance productivity, automate workflows, and improve decision-making across HR and financial operations. Management indicated that while it has incorporated AI investments into its fiscal 2026 plans, it hasn't built in meaningful revenue uplift from AI offerings just yet. We raise our fair value estimate to $300 per share from $270 on the back of accelerated bookings, and with shares up with results, we continue to view Workday as fairly valued.

We consider Workday to be a best-of-breed cloud-only platform for human capital management, or HCM, software. With its fortuitous founding not long after the birth of cloud-based software in 2005, Workday was able to demonstrate to enterprise customers that they could operate core systems in the cloud. Since then, it has continued to hone the usability of its platform, added new solutions, and developed a reputation for delivering smooth implementations. Given that Workday provides core systems in HCM and financial management, we see wide-moat Workday as having robust switching costs which, in our view, will only strengthen as the firm continues to add new solutions to its existing portfolio.

We consider Workday to be a best-of-breed cloud-only platform for human capital management, or HCM, software. With its fortuitous founding not long after the birth of cloud-based software in 2005, Workday was able to demonstrate to enterprise customers that they could operate core systems in the cloud. Since then, it has continued to hone the usability of its platform, added new solutions, and developed a reputation for delivering smooth implementations. Given that Workday provides core systems in HCM and financial management, we see wide-moat Workday as having robust switching costs which, in our view, will only strengthen as the company continues to add new solutions to its existing portfolio.

We transfer coverage and maintain our fair value estimate at $270 per share for wide-moat Workday after good third-quarter results relative to our expectations. Shares are selling off in after-hours trading, likely based on an outlook that is lower than expected based on some contract elements for some strategic (large) wins during the quarter that will take multiple quarters to ramp. Management provided a preliminary outlook for fiscal 2026 that ultimately increases the risk in estimates—in that it takes the delayed revenue recognition and assumes revenue acceleration in the second half of fiscal 2026, which increases risk. We thought shares were fairly valued ahead of results, so we now see modest upside, assuming the selloff holds. However, we assume shares will be penalized in the near term based on the outlook.

Wide-moat Workday’s financial analyst day continued to emphasize its top long-term growth opportunities, from artificial intelligence to the medium enterprise market, implying roughly similar targets as given last year, all within a $160 billion total addressable market. We reiterate our $270 fair value estimate for Workday as we see worthwhile capital allocation that will allow the firm to extract considerable value from its strong switching costs. We believe shares are fairly valued.