Billing Headwinds, Deal Delays Worked Against Workday In Q3

Shares of Workday Inc WDAY came under investors' hammers after billings headwind and potential deal slippages led the company to cut its outlook for the all-important fourth quarter.

Quick Review

• Q3 EPS: $0.03 vs. estimated $(0.04).
• Q3 revenue: $409.6 million vs. estimated $400 million.
• FY 2017 revenue guidance: $1.56 billion–$1.563 billion vs. estimated $1.56 billion.

Commentary

Workday expects some HR deals could slip in to next year due to political and macro uncertainty in the form of U.S. presidential election, Brexit and other pending European elections.

Further, Workday expressed a more cautious tone and sees fourth-quarter billings growth of 25–26 percent. The company sees headwinds to billings due to the practice of offering flexible billing terms to help close large deals.

A Look Ahead

Looking ahead, Workday sees fiscal 2018 subscription revenue growth of 30 percent versus the Street’s 35 percent estimate.

The company also guided for fiscal 2018 subscription billings, which calls for growth in the mid-20s, which compares with the consensus view of north of 30 percent growth. 

In addition, Workday called for first quarter 2018 subscription billings growth of “low teens,” which was meaningfully below the Street.

Wunderlich's Take

Consequently, Wunderlich reiterated its Hold rating on the shares, with price target of $78.

“As such, we continue to believe there is limited upside to WDAY's current valuation given the expected deceleration in growth during FY18,” analyst Ryan MacDonald wrote in a note.

But, the analyst raised his FY 2017 revenue estimate to $1.561 billion from $1.554 billion and EPS estimate to $0.02 from ($0.07). However, MacDonald cut his FY 2018 revenue estimate to $1.982 billion from $2.038 billion and EPS to $0.22 from $0.30.

At last check, Workday had plunged 10.99 percent on the day and was seen trading at $72.63.