Workday Inc Analyst Roundup After Q3 Results

Workday Inc WDAY beat Q3 estimates Monday but shares fell on the news of the company’s outlook. By Tuesday afternoon, the stock traded at $87.19, down 5.73 percent.

Below are highlights from analyst comments after the earnings news along with current rating and price targets.

Jefferies - Hold, $94 price target

“Workday exceeded expectations across all reported metrics, though growth in new annualized billings moderated (i.e., new subscription ACV) and while January quarter guidance was slightly better than consensus estimates, initial guidance for fiscal 2016 revenue growth of 40 percent was below expectations.”

Deutsche Bank - Hold, $90 price target

“Given 5 consecutive qtrs of 15 percent+ billings beats and the big Unilever win during 3Q, the beat ($242m versus $230m at high end of guidance) was more modest than investors are used to. We believe WDAY saw fewer mega-deal closings compared to prior qtrs (reflected in the 8 percent q/q decline in LT DR). Likewise, the preliminary guidance for 40 percent total revenue growth in FY16, below our 47 percent estimate, was at the low end of expectations. Note, in the year-ago period WDAY set preliminary guidance for 50 percent total revenue growth in FY15 and is on track to grow ~70 percent. While we don’t view the results as being a harbinger of any slowdown in momentum, it is noteworthy that two marquee SaaS names (CRM and WDAY) have both reported prints that were solid but at the low end of expectations.”

Citi - Neutral, $94 price target

“Financials continued to make progress with WDAY now consistently on a pace of adding ~10 customers per quarter, although not likely imminently inflecting in numbers or size. HCM add-ons are proceeding well with recruiting, time tracking and payroll seeing good attach. While trends are strong and sustainable, we continue to believe shares need to grow into valuation. If top-line can maintain 40-50 percent growth beyond FY16 based on financials as driver, this would be a catalyst for shares, although we aren’t yet on-board with this.”

Oppenheimer - Outperform, $110 price target

“Workday reported solid 3Q results as business fundamentals remain strong. Upon reflection, the results align with our intra-quarter checks and survey work that indicated Oracle and SAP customers continue to buy and install Workday. The business drivers remain healthy (billings, new logos, new product cycles), and the company's consistent execution strengthens our confidence in the name. Bottom Line: Our key theme is that financials continues to face some headwinds from maturity, likely dissipating in 2015 and beyond. We further expect continued strong fundamental execution in the near-and-medium-terms enabling WDAY's revenue growth to more than offset a predictable and linear-compression in its valuation multiple. We reiterate our Outperform rating and see any pull-backs as an opportunity to add shares.”

Summit - Hold, $92 price target

“Upside in the quarter came from $9m in professional services revenues. Cogs were better than expected for cost of subscriptions, improving gross margin by about 550bps y/y at 69.5 percent versus our 64.2 percent estimate. Operating margins were better than our expectations at -1.2 percent versus our -6.8 percent. R&D and S&M were $1.6m and $7.7m higher than we estimated. Cash flow was $41m, with free cash flow of $13m. Even with slightly better growth, the stock’s valuation is 14x, versus 11.9x EV/Revs for high growth peers. This is an 18 percent premium versus 53 percent last time and 88 percent at F1Q. We think the stock is close to fair value and prefer to wait for lower multiples or faster growth.”