In This Article:
Workday, Inc. WDAY is witnessing an improved market demand across its portfolio on the back of a flexible business model and solid cash flow. Earnings estimates for the current and next fiscal year have increased 10.2% and 7.5%, respectively, since January 2024, implying robust inherent growth potential. With healthy fundamentals, this Zacks Rank #2 (Buy) stock appears to be a solid investment option. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Key Growth Drivers of WDAY
Headquartered in Pleasanton, CA, Workday is a leading provider of enterprise-level software solutions for financial management and human resource domains. The company’s cloud-based platform combines finance and HR in a single system, making it easier for organizations to provide analytical insights and decision support. Apart from Financial Management and Human Capital Management (HCM) solutions, the company offers applications related to Payroll, Time Tracking, Recruiting, Learning, Planning, Professional Services Automation and Student.
Workday’s revenues continue to be aided by high demand for its HCM and financial management solutions. The company’s cloud-based business model and expanding product portfolio have been the primary growth drivers. Moreover, the growing clout of Workday Prism Analytics and Adaptive Insights business planning cloud offerings holds promise. Based on its expanding product portfolio, we believe that Workday has strong growth prospects.
Workday’s HCM suite of applications demonstrates solid growth momentum, driven by the transition of organizations to the cloud. A steady flow of customers portrays a high customer satisfaction rate, which bodes well for its long-term business model. Workday is also gaining traction in the international market, driven by higher digital transformation initiatives across finance and HR domains, in tune with evolving market conditions.
The company is expanding its portfolio beyond core HCM solutions into the financial domain. It is customizing them for diverse industries and verticals, such as education, the public and financial services, among others. This has helped it witness strong renewals and expand its customer base as business enterprises aim to consolidate spend and improve efficiency levels. This augurs well for the company’s long-term growth.
Subscription Revenues Buoy WDAY
Workday recorded strong third-quarter fiscal 2025 Subscription revenues. This portrayed the strength of its existing customer relationships across industries and the growing clout of its artificial intelligence (AI) innovations as more organizations are consolidating on the Workday platform.
Subscription services revenues totaled $1.96 billion, up from $1.69 billion in the year-ago quarter. At the fiscal third-quarter end, the 12-month subscription revenue backlog was $6.98 billion, up 15.3% year over year, driven by higher contract renewals. Total subscription revenue backlog increased 20.3% year over year to $22.19 billion.
With an improved market share, a focus on innovation and streamlined operations, Workday expects steady growth in the Subscription business in the impending quarters. For the fourth quarter of fiscal 2025, the company expects Subscription services revenues of $2.025 billion, up 15% year over year. For fiscal 2025, management anticipates Subscription revenues of $7.703 billion, indicating growth of 17% year over year, while for fiscal 2026, Subscription revenues are likely to grow 14% to $8.8 billion.