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Author: Alan LittleDate: 2020-11-23

Workday (WDAY) down 9% on cautious Q4 subscription guidance

Workday (WDAY) posted Q3 earnings and revenue beats on Friday, but shares closed 9% lower after the financial management software company warned of a slowdown in subscription growth in early 2021.

Before the markets opened, Workday delivered $0.86 earnings per share and $1.1bn revenue for the three months to 31st October, versus the $0.67 and $1.09bn Wall Street consensus.

However, guidance for revenue backlog growth proved to be a sticking point for investors with the 14%-16% figure offered by management falling short of the 17% forecast.

Subscription revenue was very healthy in Q3, soaring 21% to $968.5m.

Mizuho Securities analyst Siti Panigrahi said that the “cautious” guidance reflected internal concerns about rising COVID-19 cases and the expectation that it could impact new business as budgets tighten.

A conference call following the publication of the report also revealed Workday’s intentions to focus on investment and hiring in the near term, which could pressure margins.

However, the majority of analysts were happy with Workday’s numbers, with JPMorgan’s Mark Murphy revealing that he was confident in the company’s “multi-year growth potential”.

Murphy, who carries an overweight rating and $250 price target, believes that “very large established markets and a strong cloud product” bodes well for Workday’s prospects in the software industry.

Deutsche Bank, standing pat on a hold rating and $220 price target, said that it was “another solid quarter” for Workday and that the debate will largely focus on the subscription guidance for Q4.

Jefferies continued with a buy rating and $260 price target and said that it believed that the “overall environment is better than guided”.

Despite the positive sentiment from analysts, WDAY closed 9.27% lower on Friday at $209.40.


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