4. Workday Inc. (NYSE:WDAY)
Number of Hedge Fund Investors: 86
Jim Cramer noted that the Federal Reserve recently reduced interest rates by 50 basis points. He explained that while this move could benefit businesses, it won’t automatically guarantee success for Workday. Instead, he believes Workday’s ability to innovate and outsmart its competitors will be the key to its growth.
“Right now, the Federal Reserve has just cut rates by 50 basis points. While this can help businesses, it won’t necessarily drive Workday’s success. Workday will thrive by being innovative and smarter than competitors.”
Workday Inc. (NYSE:WDAY) has a positive outlook, supported by strong Q2 2024 earnings that exceeded analysts’ expectations for both revenue and earnings per share. This reflects the increasing demand for its cloud-based HR and financial management solutions. As businesses accelerate their digital transformation, Workday Inc. (NYSE:WDAY) is well-positioned to gain market share, particularly with the growing need for integrated, cloud-based solutions in hybrid work environments.
Workday Inc. (NYSE:WDAY) continues to innovate, enhancing its Human Capital Management and Financial Management platforms with new AI-driven features that improve customer satisfaction. Strategic partnerships with leading technology firms further enhance its offerings, making Workday Inc. (NYSE:WDAY) an attractive choice for companies seeking operational efficiency.
Additionally, strong customer retention rates, successful upselling to existing clients, and new acquisitions in the mid-market segment contribute to its growth potential. Recent announcements about strategic acquisitions and partnerships aimed at boosting AI capabilities have also generated positive sentiment about Workday Inc. (NYSE:WDAY) ‘s future prospect.
Baron Technology Fund stated the following regarding Workday, Inc. (NASDAQ:WDAY) in its Q2 2024 investor letter:
“Workday, Inc. (NASDAQ:WDAY) is a leading cloud human capital and financial management software vendor. The stock detracted from performance after it reported an “in-line” subscription revenue quarter, which marked the second quarter in a row of weaker-than-expected bookings growth (quarter-over-quarter change in 12-month current revenue performance obligations + subscription revenues), with bookings decelerating to 13% the fourth quarter of fiscal year 2024 and 12% in the first quarter of fiscal year 2025. Management noted it saw extended deal cycles and customers committing to lower headcount on renewals.
In our view, Workday either needs to be able to reaccelerate growth or show greater margin expansion (it is tracking about 500 basis points below its closest peers, which are delivering close to 30% adjusted operating margins vs. about 25% for Workday). Given the current headwinds around IT budgets – namely, the ability for back office digital transformation projects to sustain priority amidst AI projects that tend to focus on the front office – and the company’s tardy margin expansion, we decided to exit the remainder of the position (we had trimmed it after our visit to Workday’s headquarters in the March quarter). We will revisit the name if we gain greater conviction in either faster growth or an updated target model that incorporates more operating leverage.”
