Workday Forecast Disappoints, Shares Tumble 10%

Workday’s stock dropped sharply Tuesday evening after the company issued a quarterly revenue forecast that fell short of Wall Street’s expectations. The decline overshadowed a solid fourth-quarter earnings beat.

The HR and finance software provider reported adjusted earnings of $2.47 per share, topping estimates of $2.32. Revenue for the quarter, which ended January 31, reached $2.53 billion, a 14.5% increase from the same period last year.

However, guidance for the current quarter proved to be the sticking point. Workday projected subscription revenue of $2.335 billion and an adjusted operating margin of 30.5%. Analysts had anticipated $2.35 billion and a 30.9% margin.

The company’s full-year outlook also suggests a slowdown, with subscription revenue growth projected between 12% and 13%. This comes amid a broader market sell-off in software stocks, fueled by concerns that new AI technologies could disrupt established business models. Workday’s stock is down 39% so far this year.

In a recent leadership shift, co-founder Aneel Bhusri returned to the CEO role last month. On a call with analysts, Bhusri pushed back against the idea that AI will make core HR and finance software obsolete. "I personally just don’t see that happening," he said.

Despite the cautious forecast, the company continues to invest in AI, having recently acquired integration startup Pipedream. Executives noted some sales cycles, particularly in government and healthcare, are lengthening, but emphasized a commitment to long-term margin and profit growth.

Source: CNBC