Workday beats earnings expectations but lowers future revenue guidance
- Workday, Inc. reported earnings of $1.89 per share and revenue of $2.16 billion for Q3, both exceeding analyst estimates.
- The company observed significant growth in subscription revenues and revenues backlog year-over-year.
- Despite positive results, Workday revised its FY 2025 revenue guidance lower, causing shares to drop in after-hours trading.
On November 25, 2024, Workday, Inc. released its third-quarter financial results, revealing a notable performance in the fiscal year. The company reported earnings of $1.89 per share, surpassing the average analyst estimate of $1.76. This earnings report comes alongside quarterly revenue totaling $2.16 billion, which was also above the consensus estimate of $2.13 billion and demonstrates an increase compared to $1.87 billion in the same quarter last year. Workday's subscription revenue for the quarter was reported at $1.959 billion, reflecting a significant 15.8% year-over-year growth. Additionally, the firm disclosed a 12-month subscription revenue backlog of $6.98 billion, marking a 15.3% increase from the previous year, and a total subscription revenue backlog of $22.19 billion, showing a 20.3% year-over-year rise. While the financial results indicate favorable conditions for Workday, CEO Carl Eschenbach emphasized the company's positioning is underpinned by customer trust and the growing demand for their AI-driven solutions. Eschenbach stated that organizations are increasingly focusing on consolidating onto the Workday platform to achieve reduced costs and simplify operations. Such consolidation reflects the effectiveness of Workday's innovations and signifies a potential long-term success trajectory for the company. However, the report also carried a cautious outlook as Workday revised its fiscal 2025 subscription revenue guidance down from a range of $7.7 billion-$7.725 billion to $7.703 billion, translating to a growth forecast of 17%. This downward revision in revenue guidance led to a negative market reaction, with Workday shares declining by 10.32% in after-hours trading. The stock was reported at $242 at the time of publication, reflecting investors’ concerns regarding future performance despite strong quarterly earnings. In summary, Workday's solid third-quarter results underscore its profitability and revenue growth; however, the lowered revenue guidance may indicate potential challenges ahead. The mixed outcomes from the earnings report highlight a need for keen observation from investors regarding Workday's future trajectory in a competitive market.