Workday Inc (NASDAQ:WDAY) shares surged more than 11% after the workforce management software platform provider posted a second quarter earnings beat.
For the quarter, revenue rose 16.7% year-over-year to $2.08 billion, ahead of the $2.07 billion expected by Wall Street analysts.
Subscription revenues increased 17.2% to $1.9 billion
Adjusted earnings per share (EPS) were $1.75, up from $1.43 in the year-ago quarter and ahead of estimates of $1.65.
"Our second quarter performance was ahead of our expectations across our key financial metrics," Workday CFO Zane Rowe commented.
“We see a macroeconomic environment consistent with last quarter and are reiterating our full-year FY25 subscription revenue guidance while slightly raising our expectation for FY25 non-GAAP operating margin."
The company now expects a non-GAAP operating margin of 25.25%, compared to its earlier expectation of 25%.
Analysts at Citi noted that Workday bulls were celebrating the pivot to margins.
“Workday reported a skinny beat and maintained its full-year subscription revenue guidance with a 25 basis point raise to the full-year operating margin guide,” they wrote in a note to clients.
They added that Workday’s forward-looking metrics were softer than expected, with a billings miss and Q3 cRPO (a measure of future revenue) guided to be 14% to 15%, compared with the Street consensus of 15.6% as macro headwinds continued.
However, management’s updated medium-term update included a faster margin ramp to a 30% plus operating margin by the end of fiscal 2027, compared to the previous guidance of 25% plus.
“We believe this was widely hoped for by bulls but still sooner than expected, now resetting the debate to focus on mid-teens growth durability,” Citi’s analysts wrote.
“While we are encouraged by the shift, we remain ‘Neutral’ as we see a challenging deal environment, with balanced risk-reward as shares trade at 26 x CY25 enterprise value (EV)/free cash flow (FCF).”
The analysts have a target price of $274 on Workday.
Shares of Workday traded 11.9% higher at about $258 in early trade on Friday.