We came across a bullish thesis on Workday, Inc. (WDAY) on Twitter by TechFundies. In this article, we will summarize the bulls’ thesis on WDAY. Workday, Inc. (WDAY)’s share was trading at $268.87 as of Dec 4th. WDAY’s trailing and forward P/E were 44.15 and 31.65 respectively according to Yahoo Finance.
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WDAY reported a mixed quarter, with decent results but a soft guidance outlook, signaling that the business is experiencing a slow deceleration. The company posted subscription revenue of $1.96 billion, up 15.8% year-over-year, in line with street expectations. However, the net revenue delta of $56 million was a decline from the previous two quarters, highlighting a slight slowdown. Despite this, the business is growing around 15% annually, as evidenced by the 7.8% year-over-year growth in deferred revenue and 15.3% growth in current remaining performance obligations (cRPO). This indicates that the company’s long-term revenue pipeline is strong, though payment cycles are becoming more back-end loaded.
Profitability saw an improvement, with a pro forma operating margin (OM) of 26%, up roughly 100 basis points from the previous year, and GAAP OM increasing to 7.6%, compared to 4.7% last year. Stock-based compensation was reduced to 17% of revenue, down from 19% last Q3, showing progress in managing this expense. Despite these improvements, the company’s guidance for Q4 subscription revenues to grow around 15% was somewhat underwhelming, as it falls short of analyst day projections for mid-teens growth through FY27. Additionally, next year’s revenue guidance was set to 14% growth, raising concerns that further reductions could be in the cards.
Management’s position is that the first quarter starts slower due to the leap year comp, but they expect an acceleration through the year driven by strategic deal revenue recognition, higher sales productivity, and potential AI agent benefits. They also forecast a pro forma OM of 27.5% for next year, a solid increase from this year’s 25.1%.
There are also some positive developments, including the departure of the old president, who was seen as too short-term focused, and the hiring of a new leader with over 20 years of experience at SAP. The company is also seeing increased adoption of AI, with over 30% of customer expansions now incorporating AI functionality. Although the impact of AI remains uncertain, the introduction of AI agents—such as the recruiter agent, which increases deal size by 150%—has the potential to drive future growth.
Although near-term revisions may pose challenges, WDAY remains a robust company with a strong product offering, effective distribution, and a competitive market position. The risk/reward profile is appealing, with significant upside potential according to the internal model of $380 by 2027 if the economy stabilizes and AI agents prove effective, which could enhance both financial performance and the company’s valuation.
Workday, Inc. (WDAY) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 84 hedge fund portfolios held WDAY at the end of the third quarter which was 86 in the previous quarter. While we acknowledge the risk and potential of WDAY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than WDAY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.