About WorkDay
Workday Inc (NYSE:WDAY) is a leading SaaS-based Human Capital Management, or HCM, solutions provider. Currently, the company caters to 450 companies for their Human Resource solutions. The company fulfills the needs of businesses that have 1,000 to 100,000 employees.
Workday Inc (NYSE:WDAY) is expected to grow sales in the high-twenties for at least the next 3-4 years. I believe that the company will report negative profit for at least 2-3 years, as the current sales and marketing and R&D costs are very high. But, with the economies of scale, the sales and marketing costs will come down to 30% of revenue in the next few years. Also, the R&D cost will stabilize at the industry standard of around 5% of revenue in the next few years.
Workday will increase revenue
I expect that more and more companies will move to SaaS-based HCM rather than having on-premise applications, Workday Inc (NYSE:WDAY) is going to gain at the expense of its competitors Oracle Corporation (NYSE:ORCL) and SAP, who have been slow in moving from on-premises to cloud computing platform.
Currently, Workday Inc (NYSE:WDAY) has customers whose workforce strength is between 1,000 to 10,000 employees. But the larger firms who have been using Oracle or SAP may possibly shift to SaaS-based HRM products. This gives Workday Inc (NYSE:WDAY) a chance to erode the traditional customer base of its large competitors and gain ground. The company has added a recruitment app in its HR system, which will help the incumbent vendor buy incremental HR products.
Expansion in financial products will enhance the product offerings
The company has launched its financial products. According to the company, current financial offerings have 85% of functionality needed to service fortune 500 companies. The remaining gap will be covered in the next 12 months. The main feature of its financial offerings is that it provides built in analytics and reporting facilities, which the traditional data warehousing models lack. Also its in-memory technology will be faster. The company is also developing a big data analytics product, which will be rolled out in mid 2013.
International growth will drive the future revenue and profit
Currently Workday caters to companies in the US and Canada. The company’s financial offering is sold in UK and France too. The Company is planning to expand its presence in the other geographical regions either through direct sales or by entering into strategic collaborations with other firms. Workday Inc (NYSE:WDAY) has its sales offices in the UK and Hong Kong. The company has plans to increase its international presence in Northern Europe and South East Asia. This will help the company increase its customer base and increase its revenue in the coming year.
Peer groups
salesforce.com, inc. (NYSE:CRM): salesforce.com, inc. (NYSE:CRM) is a leading SaaS-based CRM solution provider. SalesForce.com recently signed a nine year contract with Oracle. According to the deal, SalesForce.com will use Oracle’s products as core infrastructure. This will help the company re-orient its investment and resources toward its core business of application development from the development of its infrastructure.
The company also acquired ExactTarget last month. This acquisition will help it venture into Cloud based marketing solutions. ExactTarget has been considered a leader in this segment of business. So this will also help the company gain a considerable market share.
The company has also hired ex Oracle exec Keith Block, who has been attributed to have changed the sales business to become a multi-billion dollar business with record revenue and high margin. His experience in sales will help salesforce.com, inc. (NYSE:CRM) increase its sales and thereby its profit margin.
NetSuite Inc (NYSE:N) is a cloud-based ERP service provider. NetSuite Inc (NYSE:N) provides its solution to SMB. The SaaS based ERP solution is still at a nascent stage, which is expected to grow in high double digits in the coming years. The company has been able to gain the large enterprise order to provide ERP solution at the cost of incumbent Oracle and SAP.
We believe that going forward, large enterprises will also move their in-house ERP system to cloud based SaaS. This will help NetSuite Inc (NYSE:N) gain market share at the expense of the in-house solution offering companies. Recently, the company has launched its e-commerce product SuiteCommerce, which it will sell as part of its holistics ERP. This will also increase its chances to win large ERP business.
Conclusion
Workday Inc (NYSE:WDAY) is set to expand its product offerings and undergo international expansion in the coming year. I believe the company has been able to gain market share in HCM and its financial product offerings will allow it to further strengthen its position with its existing customers. The company has been targeting SMB in the past. With its new product offerings, it will be able to increase its customer base to include Fortune 500 companies. Based on these factors I recommend investors buy Workday.
The article Is This SaaS Company a Good Bet? originally appeared on Fool.com and is written by Lalit Kumar.
Lalit Kumar has no position in any stocks mentioned. The Motley Fool recommends Netsuite and Salesforce.com. Lalit is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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