Market Overview

Investors Cheer Workday's Q3 Earnings Beat

Investors Cheer Workday's Q3 Earnings Beat

Enterprise cloud applications provider Workday, Inc. (NASDAQ: WDAY) reported Thursday a top-and-bottom line beat in its third-quarter results.

Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

  • Wells Fargo's Philip Winslow maintains a Market Perform rating on Workday with a price target lifted from $150 to $165.
  • Credit Suisse's Brad Zelnick maintains at Neutral, price target lifted from $150 to $155.
  • Jefferies' John DiFucci maintains at Hold, price target lifted from $141 to $152.
  • Oppenheimer's Brian Schwartz maintains at Outperform, unchanged $174 price target.

Shares of Workday hit a new 52-week high of $166.19 and were up around 13 percent Friday afternoon.

Wells Fargo: Market Share Gains Only Starting

Workday won market share in its core Human Capital Management (HCM) business. The company also saw accelerated growth in Financial Management suite with a net Annualized Customer Value (ACV) up over 60 percent from a year ago.

During the quarter, deferred revenue and billings also came in better than expected and management highlighted early success in its Adaptive Insights into large enterprise customers.

Winslow said Workday should continue gaining share in HCM, which boasts an improved product portfolio in both depth and breadth. This outlook is mostly priced in to the stock at current levels, however.

Related Link: Analysts Mixed On Workday's Outlook

Credit Suisse: Valuation Concerns

Workday's "all-around clean quarter" also showed organic acceleration in new business growth, Zelnick said. The company's ongoing success in HCM along with early signs of success in Adaptive is encouraging but overshadowed by the stock's valuation.

The research firm's $155 price target implies a premium valuation of 10.2 times EV/Revenue (fiscal 2020) and 58.8 times EV/uFCF (fiscal 2020).

Jefferies: No Slowdown

Workday's organic new subscriber ACV rose by a "robust" 57 percent year-over-year in the third quarter which marks a reversal from last year's negative 15 percent growth, DiFucci said. Net new ACV growth also accelerated in the quarter across HCM and financials and among medium and enterprise customers and in all regions.

Management's fiscal 2020 subscription revenue guidance of 26.5 percent year-over-year growth to $3-$3.01 billion and non-GAAP operating margin of 12 percent came in ahead of the $2.97 billion and 11.6 percent the consensus estimate called for. This serves as a sign of strong demand for the company's products at a time when the stock market showing volatility.

Oppenheimer: Bullish Case For The Stock

The bullish case for Workday's stock was reinforced in the third quarter, Schwartz said. A few reasons for this include:

  • Accelerating growth trends in billings, subscription revenue, total revenue, subscription backlog.
  • Operating margin of 6.7 percent was around 230 basis points above consensus estimates.
  • Management's 2020 outlook came in ahead of expectations.
  • Encouraging early traction in Adaptive Insights.

Latest Ratings for WDAY

Jan 2021Goldman SachsInitiates Coverage OnBuy
Jan 2021KeyBancMaintainsOverweight
Dec 2020B of A SecuritiesReinstatesBuy

View More Analyst Ratings for WDAY
View the Latest Analyst Ratings


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