Workday Stock Rises as Company Increases Profit Margin Goal
- Workday stock rises as the company boosts its profit margin goal for 2027.
- Although subscription software growth guidance was reduced, higher adjusted operating margin target surprises analysts.
- Increased profit margin target contributes to the rise in Workday stock.
Workday has announced better-than-expected earnings for the recent quarter, reporting an adjusted earnings per share of $1.75, surpassing the anticipated $1.65. The company also achieved revenue of $2.085 billion, exceeding the forecast of $2.071 billion. During a conference call, Workday's finance chief, Zane Rowe, provided an optimistic outlook, projecting an adjusted operating margin of 25.25% for the 2025 fiscal year, an increase from the previous estimate of 25%. He also anticipates a rise in the operating margin to 30% by the 2026 and 2027 fiscal years, alongside a 15% growth in annual subscription revenue. Despite these positive indicators, challenges remain for Workday. Rowe noted that organizations are exercising caution in signing contracts, and there has been a slowdown in headcount growth among existing customers. This cautious approach reflects broader market conditions, which have not improved significantly in recent quarters. Deutsche Bank analysts have responded positively to Workday's performance, raising their 12-month price target for the company's stock from $265 to $275. The economic landscape may shift in favor of cloud software companies like Workday, especially following comments from Federal Reserve Chair Jerome Powell, suggesting a potential reduction in the benchmark interest rate. However, CEO Carl Eschenbach cautioned that the current environment for IT spending is likely to persist, emphasizing the company's preparedness and confidence in its product offerings.