Workday Inc WDAY reported its third-quarter results Wednesday, easily exceeding what Wall Street expected — but digging deeper into the finer print reveals some concerning metrics.
The Analyst
KeyBanc Capital Markets' Brent Bracelin maintains a Sector Weight rating on Workday's stock with no assigned price target.
The Thesis
Workday's "solid" third quarter consisted of a top- and bottom-line beat in which revenue rose 34 percent from a year ago to $555 million against expectations of $541 million, Bracelin said in a research report. (See Bracelin's track record here.)
The company also earned 24 cents per share versus expectations of 9 cents, while year-over-year subscription growth rose 37 percent.
Yet the subscription growth rate implies a deceleration from the prior three-quarter average of 42 percent. The company's backlog growth of 37 percent year-over-year to $4.5 billion also marks a deceleration from 45 percent.
Workday's short-term deferred growth slowed to 27 percent, which marks the fourth consecutive quarter of deceleration, the analyst said. On top of the multiple segments that are slowing down, the company faces a period of tougher compares and will be up against a string of large Fortune 100 customer wins, Bracelin said.
KeyBanc expects Workday's key growth metrics to further decelerate next year, which implies the stock's strong gains throughout 2017 already reflect a premium valuation.
Price Action
Shares of Workday were trading lower by more than 1 percent Thursday morning but are still up 61 percent since the start of 2017.
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Photo courtesy of Workday.
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