Analysts Mixed On Impact Of Workday's Deal With Wal-Mart

Analysts are mixed on the impact of the deal Workday Inc WDAY announced with Wal-Mart Stores, Inc. WMT for offering its core human capital management (HCM), recruiting, planning and learning products.

Variability in Core HCM Business Worrisome

Brean Capital noted that the company's core HCM business has shown increasing variability over the past two years, with fiscal year 2016 seeing meaningful deceleration. Therefore, the analyst believes, the ability of the company to execute on large cross-selling opportunities around add-products such as recruiting and planning becomes important.

Analyst Yun Kin is of the view that Wal-Mart represents a sizeable and incremental growth opportunity. However, the analyst also feels it would provide disruption if not managed properly, as sales could become less focused on landing new accounts.

Brean's checks revealed lackluster demand for Workday Financials in the large enterprise market. To justify its current high valuation, the firm believes the company has to gain sizeable market share in the $27 billion financial app mark, which required strong traction in the enterprise market. Until the traction emerges, the firm believes risk/reward is not favorable at current valuation.

Brean has a Sell rating and $62 price target on Workday.

Big Deal Worries Debunked with Wal-Mart Contract

Drexel Hamilton said Wednesday's news debunks concerns around big deals. The firm pointed out that weakness with large deals in early November was responsible for the soft fourth quarter guidance and a sharp selloff in the company's shares in early December. Apart from the financial implications, the firm sees psychological implications for the stock and the company's brand.

Analyst Brian White values the worth of the Wal-Mart deal to be $100-$200 million in annual revenue, if over two million Wal-Mart employees were eventually part of this subscription over time. While noting that a deal of this size will take some time to ramp, the analyst does not expect the full revenue impact to be felt in the first year or two.

Drexel Hamilton has a Buy rating and a $104 price target.

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