Workday Inc (NASDAQ:WDAY) shares slid 10.3% in early trading Wednesday, despite reporting stronger-than-expected quarterly earnings and revenue, as investors weighed concerns over the durability of growth in a slowing macroeconomic environment.
The enterprise software company posted non-GAAP earnings per share of $2.32, beating analyst expectations by $0.15. Revenue came in at $2.43 billion, slightly above the consensus forecast of $2.42 billion.
Subscription revenue, the company’s key growth driver, rose 14.5% to $2.24 billion. Gross margin remained healthy at 76%, while operating income jumped 60% year-on-year. Free cash flow reached $550 million, representing a 23% margin.
“Workday delivered another solid quarter, fueled by the strength and diversity of our business and the momentum we're seeing across our AI portfolio,” CEO Carl Eschenbach said.
CFO Zane Rowe highlighted continued progress in growth initiatives, particularly in artificial intelligence, and provided guidance for fiscal 2026. The company now expects subscription revenue of $8.828 billion, up 14%, and a non-GAAP operating margin of roughly 29%.
Analysts at Jefferies said Workday’s strong third-quarter results demonstrated consistent execution, with total remaining performance obligations (cRPO) rising 17.6%, ahead of expectations. The firm noted momentum in the public sector and continued adoption of AI solutions, with 35% of deals including AI components and 75% of customers using the company’s Illuminate platform.
However, the forward-looking cRPO guidance of 15% to 16% for the fourth quarter, when excluding one-time items, fell short of expectations, highlighting potential challenges in segments reliant on federal funding and slower professional services revenue.
“Post the after-hours move, WDAY trades at 14 times 2027 free cash flow, a more than 15% discount to peers,” Jefferies wrote. “We remain positive due to the company’s proprietary data, consistent execution, and sizable margin opportunity.”