Shares of Workday (WDAY) tanked in after-hours trading after the software company reported earnings for its third quarter of Fiscal Year 2025 that was accompanied by a disappointing outlook. Earnings per share came in at $1.89, which beat analysts’ consensus estimate of $1.76 per share. It is also worth noting that WDAY has beaten earnings estimates for nine consecutive quarters.
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In addition, sales increased by 15.5% year-over-year, with revenue hitting $2.16 billion and subscriptions making up $1.959 billion of the total. This beat analysts’ expectations of $2.13 billion. According to CEO Carl Eschenbach, the company’s growth can be attributed to corporations’ need to simplify their operations, which Workday enables them to do so by consolidating HR and finance tools onto its platform.
Furthermore, Workday reported a 15.3% year-over-year increase in its 12-month subscription revenue backlog to $6.98 billion, while its total subscription revenue backlog rose 20.3% to $22.19 billion. The company also repurchased approximately 0.6 million shares of Class A common stock for $157 million under its share buyback programs.
Guidance for FY 2025
Looking forward, management has provided the following guidance for FY 2025:
- Subscription revenue of $7.703 billion compared to the previous outlook of $7.7 billion and $7.725 billion
- Non-GAAP operating margin of 25.5% compared to analysts’ estimates of 25.3%
As we can see, the company’s subscription revenue outlook came in worse than expected at near the bottom end of its previous guidance range, which likely led to the after-hours move in the stock price.
Is Workday a Good Stock to Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on WDAY stock based on 21 Buys, seven Holds, and one Sell assigned in the past three months, as indicated by the graphic below. After a 2% year-to-date loss, the average WDAY price target of $292.28 per share implies 8.14% upside potential. However, it’s worth noting that estimates will likely change following today’s earnings report.
