UPDATED 19:44 EST / MAY 25 2023

CLOUD

Strong earnings beat sends Workday’s stock higher

Human resources software pioneer Workday Inc. beat expectations in its fiscal first-quarter financial results today and hired a new chief financial officer, sending its stock higher in extended trading.

The company reported a net profit of $136,000 for the quarter, working out at less than a penny a share. Earnings before certain costs such as stock compensation came to $1.31 per share, while revenue rose 17%, to $1.68 billion. They were decent results, with Wall Street analysts targeting earnings of just $1.12 per share on slightly lower sales of $1.67 billion.

Workday’s subscription revenue rose 20% from a year ago, to $1.53 billion. It also reported a 24-month subscription revenue backlog of $9.79 billion, up 22%. Subscription revenue is a key metric for Workday because most of its customers consume its products on an “as-a-service” basis.

Investors liked what they saw, sending Workday’s stock up more than 7% in the after-hours trading session.

“Workday had a strong first quarter, underscoring the value proposition of the full Workday platform combined with our unique approach to artificial intelligence and machine learning,” said Workday co-Chief Executive Aneel Bhusri (pictured).

Workday is a market leader in human resource software. It sells cloud-based software as a service that covers areas such as human capital management, financial management and enterprise resource planning. Enterprises use it to automate human resource management and business tasks such as payroll and expenses, while tracking and managing employee data.

Carl Eschenbach, Workday’s other co-CEO, who joined the company late last year, said the company’s strong momentum shows that many customers rely on Workday as an intelligent digital backbone that supports their most critical assets. “As we look ahead, we will continue to innovate even faster, take an industry-first approach, and maintain a vibrant and engaged partner ecosystem,” he said.

In a statement, Workday’s outgoing CFO Barbara Larson said the company sees second-quarter subscription revenue of between $1.611 billion to $1.613 billion, representing 18% growth at the midpoint. The forecast slightly exceeded analyst’s forecast of $1.61 billion. Workday also raised its full-year subscription revenue outlook, saying it’s now targeting a range of $6.550 billion to $6.575 billion.

Constellation Research Inc. analyst Holger Mueller said Workday deserves credit for maintaining its subscription revenue growth at above 20%. “With its total revenue up by $250 million, and costs only rising by $200 million, it managed to get back into profit this quarter,” Mueller pointed out. “This is a good sign, and with its stable subscription revenue forecast, Workday is likely to improve its profitability in the coming quarters.”

In a separate announcement, Workday said Larson will step down from her role, to be replaced by former VMware Inc. CFO Zane Rowe. The appointment will be effective starting June 12. Rowe is a veteran executive with more than two decades’ experience in senior roles, having previously served long stints as the CFO of EMC Corp. and United Airlines Inc. He also briefly the post of interim CEO at VMware from February 2021 to May 2021, and earlier in his career led North America sales for Apple Inc.

“VMware veteran Zane Rowe adds strength to Workday’s executive management, he’s a good hire,” Mueller said. “It’s notable that Workday is adding another VMware alumni, following the appointment of co-CEO Eschenbach last year.”

Photo: Intel Capital/Flickr

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