Financial and HR software company Workday (NASDAQ:WDAY) reported third-quarter 2024 results that beat the market’s revenue expectations, with revenue up 15.8% year over year to $2.16 billion. Non-GAAP earnings of $1.89 per share were 7.5% above analyst consensus estimates.
Is Now the Time to Buy Workday? Find out in our full research report.
-
Gain: $2.16 billion vs. analyst estimates of $2.13 billion (15.8% YoY growth, 1.4% better)
-
Custom EPS: $1.89 vs. analyst estimates of $1.76 (7.5% better)
-
Adjusted operating result: $569 million vs. analyst estimates of $540.2 million (26.3% margin, 5.3% better)
-
Subscription revenue guidance in the fourth quarter of $2.025 billion, a slight miss compared to expectations of $2.040 billion
-
Fourth quarter operating margin guidance (non-GAAP). of 25.0%, slight miss vs. expectations of 25.5%
-
Operating margin: 7.6%, compared to 4.7% in the same quarter last year
-
Free cash flow margin: 16.6%, compared to 24.7% in the previous quarter
-
Invoices: $2.05 billion at the end of the quarter, up 16.8% year over year
-
Market capitalization: $70.64 billion
“Workday’s solid performance in the third quarter reflects the trust our customers have in us across industries, the global momentum around our AI-driven innovations, and the strength of our partner ecosystem,” said Carl Eschenbach, CEO of Workday.
Workday (NASDAQ:WDAY), founded by industry veterans Aneel Bushri and Dave Duffield after their former company PeopleSoft was acquired by Oracle in a hostile takeover, provides cloud-based software for organizations to manage and plan finances and human resources.
Finance and accounting software is benefiting from twin trends in cost savings and ease of use. First, there’s the SaaSification of businesses, large and small, who much prefer the flexibility of cloud-based, web browser-delivered, subscription-based software to the hassle and expense of buying and managing on-premises enterprise software. . Second is the consumerization of enterprise software, which merges multiple standalone processes, such as supply chain and tax management, into a single, easy-to-use platform.
A company’s long-term sales performance indicates its overall quality. Even a bad company can perform well for one or two quarters, but a top company grows for years. Over the past three years, Workday’s revenue grew at a compound annual growth rate of 18.6%. While this growth is solid on an absolute basis, it lagged slightly behind our software sector benchmark. Luckily, there are more things to love about Workday.
This quarter, Workday reported 15.8% year-over-year revenue growth, and revenue of $2.16 billion exceeded Wall Street estimates by 1.4%.
Looking ahead, sell-side analysts expect revenue to grow by 13.5% over the next twelve months. This forecast is still commendable and indicates that the market is achieving success with its products and services.
Unless you’ve been living under a rock, it should be clear by now that generative AI will have a huge impact on the way major companies do business. While Nvidia and AMD are trading close to their all-time highs, we prefer lesser-known (but still profitable) stocks that are benefiting from the rise of AI. Click here to access our free report, one of our favorite growth stories.
Billings is a non-GAAP metric often called “cash revenue” because it shows how much money the company collected from customers in a given period. This differs from revenue, which must be recognized in parts over the term of a contract.
Workday’s billings totaled $2.05 billion in the third quarter, and over the past four quarters, growth slightly outpaced the industry, averaging 13.7% year-over-year increase. This alternative revenue measure grew more slowly than total revenue, meaning the company is generating revenue faster than it is raising cash — a liquidity headwind that could also indicate a slowdown in future revenue growth.
The customer acquisition cost payback period (CAC) represents the months it takes to recoup the costs of acquiring a new customer. Essentially, this is the breakeven point for sales and marketing investments. A shorter CAC payback period is ideal as it implies a better return on investment and better scalability of the business.
Workday is quite efficient at acquiring new customers and its CAC payback period was 31.7 months this quarter. The company’s performance shows that it has a strong brand reputation, giving it the freedom to invest in new product initiatives while maintaining freedom of choice.
It was good to see that Workday narrowly topped analysts’ revenue estimates this quarter. On the other hand, the invoices were missing. Expectations also lagged somewhat, with fourth-quarter subscription revenue and non-GAAP operating margin slightly missing. Overall, this quarter could have been better. The stock fell 3.3% to $261.36 immediately after the report.
Workday’s last quarter wasn’t that good. However, one earnings report doesn’t define the quality of a company, so let’s examine whether the stock is a buy at its current price. We think the latest quarter is just one piece of the longer-term business quality puzzle. Quality, in combination with valuation, can help determine whether the stock is a buy. We cover that in our useful full research report which you can read here. It’s free.
