UPDATED 19:46 EDT / AUGUST 24 2016

Workday Inc CEO Aneel Bhusri NEWS

Workday shares soar on continued fast revenue growth

Cloud software supplier Workday Inc. keeps growing like a weed, a trend investors seem to like despite the rising expenses needed to keep that growth going.

The provider of cloud human resources and finance software today reported that second-quarter revenues jumped 34 percent, to $378 million, somewhat above analysts’ expectations of $373 million. Subscription service revenues led the way, up 37 percent to $306 million.

That upside prompted investors to jump in. In trading after the market close, shares rose almost 12 percent, to about $89.20, after the stock fell a fraction of 1 percent on the day. One analyst on the earnings conference call praised the “stunning billings number.” Shares are up 15 percent in the past year.

“We saw consistent strength across product lines, geographies and industries,” co-founder and Chief Executive Aneel Bhusri (pictured above) said in the earnings call. He said the company had added a number of new customers such as IBM, Dell, Duke Energy, Samsung, and Qantas Airlines.

That growth came at a heavy cost, however. Costs rose to $465 million from $350 million a year ago. As a result, the company’s second-quarter loss rose to $108 million, or 55 cents a share, from $69.4 million or 37 cents last year.

Barclays analyst Raimo Lenschow said in a note to clients that the key to growth is continued strength in the company’s newer financials service. “The combination of the HR and Finance sales force has been completed,” he noted, and is “solid for the second half.” But a surprise, if small, operating profit probably isn’t sustainable because of costs related to acquisitions.

Excluding certain items related to stock compensation, acquisition costs and other factors, the company posted a 4-cent loss, compared with a 2-cent loss a year ago. Analysts were expecting a 2-cent loss.

Investors also seemed unfazed by the company’s latest outlook. For the current quarter, Workday said it expects revenues of $398 million to $400 million, a bit under the $401 million that analysts on average estimate according to Thomson Reuters.

Workday, whose cloud-based software includes human relations and payroll services as well as more recently added financial management software, competes most directly with Oracle Corp. It has been on an acquisition tear, buying cloud business intelligence software provider Platfora Inc. in late July and online learning startup Zaption Inc. in late June.

The company also inked a 15-year deal on Aug. 15 with IBM, in which Workday will host its application development and testing environment in IBM’s cloud for the next seven years and IBM will continue to use Workday’s human resources apps to manage its workforce.


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