Workday Moving From Point to Platform

We are raising our fair value estimate for Workday WDAY to $161 per share from $152 and maintaining our narrow moat and positive moat trend ratings. Since the company was founded in 2005, it has quickly gained traction with large enterprises with its natively built, pure-play human capital management, or HCM, software, having attracted more than 2,300 customers thus far. We believe Workday will continue to have an impressive win rate, rapidly increase its subscription revenue stream, and expand market share at the expense of incumbents SAP and Oracle. We believe that many customers, particularly large enterprises like Fortune 500 companies, will expand to use Workday as a platform of solutions, including adopting financial management, Adaptive planning, or HCM modules, rather than as a point solution.

We don't expect Workday to expand into a full enterprise resource planning suite offering that includes supply chain and manufacturing applications, but we believe that the addressable market for its current offering is large enough to sustain double-digit revenue growth for at least a decade. Financial management, which we estimate made up 12% of revenue in 2018, will be key for driving future revenue growth as it currently offers Workday the largest market opportunity.

HCM provides employers with a comprehensive system to manage and plan administrative and operational human resources needs such as payroll, benefits, recruiting, and learning and development. Workday has grown rapidly in HCM since its inception, which we attribute to its customer-focused approach and the growing preference for cloud software-as-a-service solutions. This provides a better user experience and lowers the company’s maintenance requirements.

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