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The Street Debates Workday's Q1 Report

The Street Debates Workday's Q1 Report

Enterprise cloud applications company Workday Inc (NASDAQ: WDAY) reported Tuesday fiscal first-quarter 2020 results highlighted by at least 30 percent growth year-over-year in total revenue, subscription revenue and subscription revenue backlog.

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

The Analysts

Canaccord Genuity's Richard Davis maintains a Buy rating on Workday with a price target lifted from $220 to $235.

Morgan Stanley's Keith Weiss maintains at Overweight, price target lifted from $200 to $219.

Wedbush's Steve Koenig maintains at Neutral, price target lifted from $209 to $211.

Wells Fargo's Philip Winslow maintains at Market Perform, price target lifted from $185 to $210.

Bank of America's Kash Rangan maintains at Buy, price target lifted from $234 to $260.

Workday's stock traded lower by 4.8 percent to $202.61 per share at time of publication.

Canaccord Genuity: 'Not A Whole Lot' Of Bearish Points

Workday reported a "solid" quarter that was consistent with expectations, Davis wrote in a note. A few bullish takeaways include new human capital management (HCM) wins secured with Fortune 500 companies, net new Annualised Customer Value (ACV) in Financials rose by 50 percent, Prism analytics was up 70 percent from last year and subscription backlog rose by 30 percent to $6.8 billion.

There was "not a whole lot" of notable bearish takeaways. Nevertheless, a few items worthy to highlight include cash flow growth was slower than billings growth and the company saw an increase in the percent of ACV landing in the fourth quarter.

Related Link: Why Workday Shares Are Down Following Q1 Earnings Beat

Morgan Stanley: 'Strong Start'

Workday benefited from easier year-over-year comparisons but the company still exceeded consensus expectations across billings, bookings and subscription revenue growth, Weiss wrote in a note. This suggests any momentum seen in the back half of fiscal 2019 has carried forward to support a "strong start" to the new fiscal year.

Weiss said the HCM business is showing signs of maturation but continues to record large wins while the Financial Management business is performing well with a net-new ACV growth of 51 percent. Adaptive Insights continues to impress as it's driving new customer growth and resonating well with existing customers.

Wedbush: Guidance Misses Expectations

Workday's management lifted its subscription revenue guidance by $15 million to $3.553 billion at the midpoint for the full-year, Koenig wrote in a note. This implies a 28 percent year-over-year growth but fell short of the Street's expectations by around $2 million.

Management also guided its fiscal second-quarter GAAP operating margin to be 27 percentage points lower than the non-GAAP operating margin along with "very little" operating cash flow, the analyst wrote.

Wells Fargo: Strong Gains Priced Into Stock

Workday is likely to continue gaining market share in HCM, payroll, financials and other markets, Winslow wrote in a note. The company's gains could come from an improving product portfolio which is growing in terms of depth and breadth.

However, Winslow said the company's favorable outlook is countered by the stock's valuation at current levels.

BofA: Sustainable Growth

Workday's growth appears to be sustainable as the HCM market it targets is larger than investors give credit for, Rangan wrote in a note. The company's HCM exposure stands at just 8 percent to 10 percent in a total addressable market that can grow from $12 billion-$14 billion today to $26 billion.

Workday appears to have added larger HCM customers towards the end of fiscal 2017 and many of the large customers will be up for renewal. The company's net retention rate above 100 percent implies the potential for upselling HCM modules on top of planning, analytics and financials.


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