Workday Inc (NASDAQ:WDAY) still has long-term upside despite its mixed 1Q report, according to UBS.
Workday shares plummeted over 15% on Friday after the human resources and financial management platform slashed its subscription revenue outlook for fiscal 2025.
Management noted the impact of elevated scrutiny in large new deals in Europe, the Middle East and Africa (EMEA) and lower customer headcount growth as factors behind its guidance.
But that wasn't big enough to sway UBS analysts from keeping its Buy rating on the stock.
“We believe the large deals are in the pipeline, but conversions are taking time due to higher-than-expected scrutiny,” the analysts wrote.
However, UBS lowered their price target from $350 to $330 on Workday stock.
Regarding investor concern that the EMEA growth challenges may be due to competitive reasons, they wrote that their checks indicate Workday’s win rates remain stable.
Positives from Workday’s first quarter report include traction in its FINS offering and securing the Defense Intelligence Agency as a Federal customer, the analysts highlighted.
“Despite the near-term challenges, we believe CEO Carl Eschenbach is putting the right initiatives in place focusing on FINS, international, and Federal, but those will take time to play out,” they wrote.
“Despite the guide down, we believe Workday can sustainably grow top line in the mid to high teens over the medium-term while delivering margins in the mid to high 20s for a collective rule of 40 story.”
Key areas to watch is the company’s calculated remaining performance obligations (CRPO), which was 18% in line with the Street for Q1 but guidance of 15% to 16% for 2Q was below expectations of 17.5%.