Workday's stock tumbles as 'elevated sales scrutiny' drives outlook cut

By Emily Bary

Company moves its full-year margin target higher but cuts expectations for subscription revenue

Shares of Workday Inc. sank in Thursday's extended session after the company, which makes software for businesses, trimmed its full-year forecast on a key metric.

Workday (WDAY) now models $7.7 billion to $7.725 billion in subscription revenue for the full fiscal year. The company had a prior subscription-revenue forecast of $7.725 billion to $7.775 billion for the period.

"Our updated subscription-revenue guidance reflects the elevated sales scrutiny and lower customer-headcount growth we experienced during the quarter," Chief Financial Officer Zane Rowe said in a release.

But he noted that Workday was boosting its forecast for adjusted operating margins. That's now expected to be 25.0% for the full fiscal year, up from a prior expectation of 24.5%. The new target reflects "increased efficiencies across the company," Rowe said.

Looking just at the fiscal second quarter, management models $1.895 billion in subscription revenue, whereas analysts tracked by FactSet were looking for $1.903 billion.

Shares fell 11% in the extended session.

The company on Thursday reported fiscal first-quarter net income of $107 million, or 40 cents a share, whereas it essentially broke even in the year-ago period.

After adjustments, Workday recorded adjusted earnings per share of $1.74, up from $1.31 a year before. The FactSet consensus called for $1.58 a share.

Workday's revenue rose to $1.9 billion from $1.68 billion, while analysts had been modeling $1.97 billion.

"With the emergence of generative AI, the shifting talent landscape and pressure to realize operational efficiencies, Workday has never been more relevant," Chief Executive Carl Eschenbach said in the release.

-Emily Bary

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05-23-24 2015ET

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