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Workday Inc Class A WDAY

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Morningstar’s Analysis

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Workday Posts Strong Q3 Though 2022 Could Reflect Delayed Effects of Coronavirus; Shares Overvalued

Julie Bhusal Sharma Equity Analyst

Analyst Note

| Julie Bhusal Sharma |

Wide-moat Workday posted strong third-quarter results, as revenue and adjusted EPS exceeded our expectations and CapIQ consensus estimates. The strong quarter further underlines our continued thesis on the resiliency of Workday’s business model despite the economic headwinds brought on by the COVID-19 pandemic. With more enterprise clients embarking on digital transformations, Workday’s HCM software continues to play an integral part in this digital landscape. Management expects these digital transformation efforts to continue gathering steam as the firm revised its top line guidance for fiscal 2021 upward. Nonetheless, management implied that subscription growth in fiscal 2022 could decelerate from fiscal 2021 as a result of recognition timing, showing delayed effects of the pandemic. These implied uncertainties for subscription revenue in fiscal 2022 offset the implications of Workday’s earnings beat. Consequently, we are maintaining our fair value estimate of $198 per share. With shares trading at a premium to our estimate even after the stock fell 3% upon the news, we continue to view the company's shares as overvalued.

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Company Profile

Business Description

Workday is a software company that offers human capital management, or HCM, financial management, and business planning solutions. Known for being a cloud-only software provider, Workday is headquartered in Pleasanton, California. Founded in 2005, Workday now employs over 12,000 employees.

6110 Stoneridge Mall Road
Pleasanton, CA, 94588
T +1 925 951-9000
Sector Technology
Industry Software - Application
Most Recent Earnings Oct 31, 2020
Fiscal Year End Jan 31, 2021
Stock Type Speculative Growth
Employees 12,400