Goldman Remains Neutral On Workday Ahead Of Q2 Report

Amid a tough operating backdrop, Workday Inc WDAY is reporting its second quarter numbers on August 24 and Goldman Sachs is expecting the results below consensus.

Workday reports its quarterly results in the midst of a tougher deal closing environment in Europe following the UK referendum in addition to stiff competition.

Goldman is modeling revenue growth of 32 percent to $372 million and non-GAAP EPS of ($0.03), versus the Street at $373 million and ($0.02). The company guided second quarter revenue of $371-$373 million.

The brokerage expects billings, a key metric, to rise 32 percent to $413 million, lower than the consensus forecast of $420 million.

"Billings face a 21pt tougher comp this quarter as growth in the year ago period was 51% versus F1Q16 growth of 31%," analyst Heather Bellini wrote in a note.

"We continue to believe there will be an increasingly larger focus on short-term billings to determine the health of the business, as WDAY has become flexible with payment terms, skewing long-term deferred's," Bellini continued.

The analyst noted that Workday has exceeded consensus deferred revenue, primarily due to long-term deferred outperformance (every quarter except F2Q16). However, short-term deferreds, has missed estimates in the last two consecutive quarters, impacting short-term billings.

In addition, the analyst noted that sequential growth guidance has been trending lower four of the last five quarters and the magnitude of billings beats have been narrowing, averaging 10 points since its IPO versus 5pts over the last four quarters.

For the third quarter, Bellini anticipates the company to guide revenue of about $390-$395 million versus consensus of $401 million if Workday reports second quarter revenue at the midpoint of its guidance range.

Goldman has a Neutral rating and $78 price target on Workday shares, which were down 0.83 percent to $82.36.