Market Overview

How The Street Is Playing Workday's Post-Earnings Decline

How The Street Is Playing Workday's Post-Earnings Decline
OneSource Virtual Announces the Launch of U.K. Payroll Services for Workday

Shares of Workday Inc (NYSE: WDAY) were trading higher by more than 2 percent Thursday after the company reported mixed second-quarter results on Wednesday.

Workday said that it lost $0.37 per share in the second quarter, which fell short of the $0.06 per share loss analysts were expecting. On the other hand, revenue of $282.7 million exceeded the $274.07 million.

Workday also issued guidance and expects its third-quarter revenue to fall in a range of $300 million to $303 million versus the consensus estimate of $302.12 million.

Here is a roundup of what some of Wall Street's top analysts are saying.

Barclays: Questions Being Raised

Raimo Lenschow of Barclays commented in a note that Workday's "healthy" second-quarter print was highlighted by a 5.2 percent billings beat. However, the company's third-quarter billings guidance was lower than expected and attributed to changing billings terms on multi-year contracts.

Lenschow said Workday's underlying trends continue to "look strong" and bolsters an overall positive view of the company despite the billings issue. However, it is important to note that the company's guidance "may have raised some concerns" around its core growth which justifies a lower trading multiple.

Shares remain Overweight rated with a price target lowered to $82 from a previous $100.

RBC: Guidance Reflects Poor Details

Ross MacMillan of RBC Capital Markets commented in a note that Workday's third-quarter guidance reflects shorter billings duration on a smaller number of new deals and renewals.

The analyst suggested that it is possible the company is being "more lenient" on payment terms rather than resorting to discounts. In fact, the guidance implies 33 percent billings growth in the bottom half of the year versus a 41 percent growth in the first half.

MacMillan also noted that over the long-term, the company's change in its billings structure will have "little to no impact" on the health of the business.

Shares remain Outperform rated with a price target lowered to $83 from a previous $100.

Wedbush: ‘Unconcerned' By Billings Guidance

Steve Koenig of Wedbush commented in a note that he believes Workday "refocused" its sales force which resulted in improved win rates and sales execution relative to the first quarter.

Koening noted that the company's pipeline is "growing well" and it is likely the company will communicate "significant opportunities" and large wins at Fortune 500 companies over the next few quarters.

Koening further suggested that investors shouldn't be "overly concerned" with the company's third-quarter guidance. The analyst added that the company's changes to its billings could be a "useful sales tactic" provided the company is able to preserve (or improve) the long-term economics of the deals – which is expected. In addition, the billings changes "seem sound" which will likely result in "very minimal risk" around customer acceptance, payment, or overall satisfaction.

Shares remain Outperform rated with a price target lowered to $99 from a previous $108.

Brean: Up To $31 Million Hit From Billings Changes

Sarah Hindlian of Brean Capital commented in a note that Workday's new billings collection was put in place to give its customers more flexible payment terms instead of ceding on price due to the competitive environment.

Hindlian continued that Workday's changes impacted the third-quarter billings guidance by up to $31 million due to a now 10 percent impact from less cash collection upfront. Excluding the changes, the analyst estimated the company's billings guidance would have been as high as $343 million which would come in above the consensus estimate of $337 million.

Hindlian also pointed out that Workday passed the 1,000 customer milestone in its recent quarter with more than 150 of these customers using FMS modules, marking an increase from 135 in April.

Bottom line, the analyst argued that taking a more "flexible" approach in its billings is "important in maintaining a competitive position" but it could also prove to be a "headwind."

Shares remain Hold rated with no assigned price target.

Canaccord: Buyers On The Dip

David Hynes Jr. of Canaccord Genuity commented in a note that Workday's "solid" second quarter and forward looking commentary "did nothing" to alter his long-term bullish thesis.

In fact, Hynes suggested that the stock is a "secular buy" and investors should be overweight the stock which is trading at roughly 7-10x EV/NTM revenues, marking a "modest" premium to the high-growth group. In addition, the stock is "one of the highest quality names" in all of the cloud software universe.

Hynes also commented on Workday's billings changes, noting that "this does not concern us" as the company "has less incentive" to collect cash up front today than it did a year ago. In addition, the company's below consensus guidance has "nothing to do" with deteriorating fundamentals or a shift in its competitive positioning.

Finally, the analyst continues to believe the company will see 30 percent-plus growth through at least fiscal 2018.

Shares remain Buy rated with an unchanged $100 price target.

Posted-In: Barclays Brean Capital Canaccord GenuityAnalyst Color Long Ideas Top Stories Analyst Ratings Trading Ideas Best of Benzinga


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