Workday's Quarter Might Be Turning Out Better Than Expected

New business trends at Workday Inc WDAY are more encouraging than management’s tone in early December, as William Blair has learned that the company recently signed a mega HR deal with one of the world’s biggest retailers, with over 2 million employees globally.

Huge Contract Spells Great News

“Though we are not privy to the size of the contract, it would represent by far the largest company Workday has ever signed—more than five times larger (on a headcount basis) than any of its existing HR customers,” analyst Justin Furby wrote in a note.

Furby said Workday trumped SAP in getting the contract and the retailer will pursue a phased deployment of Workday over the next three to four years that would drive billings significantly.

“[W]hen fully scaled, we believe a deal of this size could represent $30 million or more of annual subscription revenue (though it is very difficult to get a sense of true contract terms),” Furby highlighted.

Other Deals Bolster The Good News

The analyst’s checks also found that the company closed HR deals with a 70,000-plus employee real estate firm, a 50,000-plus employee pharmaceutical firm and several large enterprise opportunities in pipeline that could close in the coming weeks.

On the financials front, Workday is active in the midmarket, and the segment still accounts for about 10 percent of new ACV signings.

Meanwhile, the Street’s fiscal 2018 numbers have been reset (consensus is now modeling 31 percent subscription growth, versus prior view of 35 percent) following management’s initial guidance provided last quarter. But, Furby expects the numbers to move higher as the year progresses.

Furby reiterated his Outperform rating on the stock and would use current levels as a long-term buying opportunity.

Shares of Workday closed Tuesday’s trading at $74.35.

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