Workday Inc. saw its stock fall more than 2% in after-hours trading despite posting a strong third quarter that easily beat Wall Street’s forecasts and raising its end-of-year guidance again.

The company, which sells financial and human capital management software for large enterprises, reported a profit before certain costs of 86 cents per share. Revenue for the quarter came to $1.11 billion, up 18% from the same period a year ago.

Wall Street had expected Workday to report a profit of just 67 cents per share on revenue of $1.09 billion.

Those results were good, but investors were worried by a stark warning from Workday Chief Financial Officer Robynne Sisco, who told analysts in a conference call that the effects of COVID-19 are likely to weigh on its growth in the next year.

“While we have seen some recent stability in the underlying environment, headwinds due to COVID remain, particularly to net new bookings,” Sisco said. “And given our subscription model, these headwinds that have impacted us all year will be more fully evident in next year’s subscription revenue, weighing on our growth in the near term.”

Workday had actually reported strong subscription revenue growth of more than 21% in the quarter, rising to $968.5 million. Prior to that, in the second quarter, Workday’s subscription revenue had grown by more than 23%.

“It was another strong quarter across our product portfolio with continued momentum in financial management,” said Workday co-Chief Executive Aneel Bhusri (pictured). He added that Workday has now signed up more than 1,000 customers for its financial management offering, which is a new product that goes alongside its traditional human capital management products.

Nucleus Research analyst Trevor White said Workday’s efforts in expanding its customer base across its human capital and financial management applications have clearly been returning positive results. “New customer acquisitions are the main driving force behind Workday’s year-over-year revenue growth,” he said.

Workday also raised its full-year subscription revenue forecast to a range of $3.773 billion to $3.775 billion, up from its earlier range of $3.73 billion to $3.74 billion. The midpoint of that range is higher than the $3.74 billion forecast by Wall Street analysts.

That’s the second time in a row Workday has raised its subscription revenue guidance. It had previously cut its year-end forecast during the first quarter, citing uncertainty from the COVID-19 pandemic, only to raise it in the second quarter.

The raised forecast initially caused investors to cheer, with Workday’s stock rising by more than 5% before its conference call. But the mood quickly turned gloomier after Sisco’s warning.

Constellation Research Inc. analyst Holger Mueller told SiliconANGLE that although Workday had a solid quarter, investors have likely taken note that even if it delivers on its raised guidance, it still means growth of less than 10% for the full year.

“It will be the first time Workday hasn’t grown by double digits since its IPO,” Mueller said. “Still, it’s good to see Workday is managing costs well, reducing its net loss compared to a year ago. The most encouraging sign for now is the number of go-lives, among them Accenture.”

Photo: Intel Capital/Flickr