While expressing optimism regarding Workday Inc WDAY's long-term fundamental growth outlook, Brean Capital’s Yun Kim prefers to adopt a more cautious approach for the near term, especially with regard to the company’s Financial application business.
Kim downgraded the rating on Workday from Hold to Sell, with a price target of $55.
Accounting Change
“Our specific checks into WDAY's Financial Management application business indicate that a certain portion of its target customers (including software companies) is expected to undergo a major accounting change over the next couple of years, which effectively make it difficult for them to migrate from their current financial system to a new one during such major transition,” the analyst mentioned.
Kim believes several of the companies affected by the implementation of the new accounting change are unlikely to adopt a new financial system, including that offered by Workday.
This could lead to additional complexities and risks, apart from what the companies were already facing.
“In our view, the investment community has not fully accounted for this fundamental headwind that WDAY could potentially face as it tries to ramp its Financial application business starting this year,” Kim stated.
The accounting change is scheduled to be implemented by 2018.
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