BTIG Downgrades Workday Following 'Good Quarter'

BTIG analysts downgraded shares of Workday Inc WDAY after the company reported a much better-than-expected first-quarter earnings report.

Analyst Joel Fishbein Jr. downgraded the stock from Buy to Neutral with an unchanged $97 price target, despite the company reporting a solid start to the fiscal year Thursday after the close — with an impressive amount of large customer wins.

Heading into the earnings report, sentiment was bullish on Workday. The company delivered several impressive metrics beyond the top and bottom lines. The quarter consisted of the strongest quarterly growth of net new annualized customer value in nearly three years, and the company has shown it can maintain a 30-percent revenue subscription growth rate, Fishbein said in a Friday note.

Justification For The Rating Change Against 'Good' Quarter

Although Workday reported a "good" quarter, there are some concerning highlights, Fishbein said. While a revenue growth rate in the low 30s is expected, it will likely be accompanied with a "relatively muted" margin expansion of 250 basis points per year through fiscal 2020, Fishbein said — the bare minimum required to warrant a price target close to today's trading levels.

Two metrics that could shift Fishbein's opinion to a more bullish stance, he said: Subscription revenue growth in the high 30s and annual expansion over 300 basis points.

It's uncertain if these two metrics will play out given the company's priority of focusing on growth over profitability, the analyst concluded. Fishbein is recommending investors sit on the sidelines and wait for a better catalyst or entry point.

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