Macquarie Says Sell Workday Shares, Sees As Top Short In Enterprise Software

Workday Inc WDAY shares have gained 6 percent since March 28. Macquarie’s Sarah Hindlian maintained an Underperform rating for the company, with a price target of $49 saying that the shares seem to be reflecting an “unrealistic outcome in the ERP/Financial market.”

Workday has gained a strong foothold in the HCM SaaS market. Analyst Sarah Hindlian said, however, that there is unlikely to be a similar uniform shift to the cloud in the ERP/Financial market as was witnessed in the HCM, CRM and other cloud marketplaces.

Annual Contract Value Decline

Workday seems to be having to work harder to generate the same business. The company’s latest quarterly results indicate a decline of ~6 percent in the New Annual Contract Value for FY16. Hindlian added that the improvements in Workday’s FY17 billings guidance and FY16 results resulted from contract terms encouraging customers to pay for more than one year of service, which significantly expands long-term deferred revenues.

Limited TAM

“Using our database of Workday’s customers and the applications they have deployed, we have found that uptake of the company’s Financial module remains limited to educational and non-complex services verticals and that progress is being made almost entirely in the SMB category,” the analyst wrote. She added that Workday’s addressable Financials TAM is about 50 percent or less of the total Financials marketplace.