Human resources software giant Workday Inc. beat expectations with its latest financial results, reiterated its full-year guidance and announced the acquisition of an artificial intelligence-powered talent management startup, yet investors bailed on the company anyway, sending its stock lower in extended trading.

The company reported fourth-quarter earnings before certain costs such as stock compensation of $1.57 per share, just ahead of the Street’s forecast of $1.56 per share. Revenue for the period rose 17% to $1.922 billion, narrowly beating the analyst consensus estimate of $1.917 billion. Meanwhile, subscription revenue came to $1.76 billion, up 18% from a year earlier, in line with the Street’s estimates.

All told, the company reported net income for the quarter of $1.88 billion, up from a loss of $126 million in the year-ago quarter.

Digging deeper, the company said its adjusted operating margin ended the quarter at 24%, slightly ahead of its own guidance of 23.5%, while its free cash flow was $948 million, well ahead of its own estimate of $745 million. Officials said in a conference call that the company benefited from about $100 million in customer payments that arrived sooner than expected.

The numbers were quite solid overall, but Workday’s stock trended lower in the after-hours trading session, down 8% at the time of writing.

Workday also reported full-year fiscal 2024 revenue of $7.26 billion, up 17% from the prior year and just ahead of its own guidance of $7.25 billion.

During the quarter, Carl Eschenbach (pictured) assumed the role of sole chief executive officer, as Workday’s co-founder and former co-CEO Aneel Bhusri stepped down, though he’ll continue to be involved as its executive chairman. Eschenbach first joined the company in December 2022, when the transition plan was announced.

Eschenbach said the latest results are a testament to the strength of the company’s value proposition and the durability of its business. “We’re seeing continued momentum with full platform customer wins and expansions within our base, strengthening international performance, growth of our partner ecosystem, and the seamless execution of nearly 19,000 Workmates across the globe – all setting us up for an incredible fiscal year 2025,” the CEO said.

Workday’s growth in the quarter and over the full-year was done the old-fashioned way, with the company increasing its revenue faster than its cost base, said Holger Mueller of Constellation Research Inc. He pointed out that fiscal 2024’s revenue was up almost $1 billion from the year prior, while its costs rose by around $600 million. “Workday has a good quarter and an even better year, and it should break the $2 billion quarterly subscription revenue barrier in fiscal 2025,” the analyst said.

Looking ahead, Workday reiterated its prior fiscal 2025 guidance, saying it sees subscription revenue of between $7.725 billion and $7.775 billion, which would represent growth of 17% to 18%. It’s also forecasting an adjusted operating margin of 24.5%.

For the current quarter, Workday says it’s looking for subscription revenue growth of around 18%, in line with the Street’s guidance. The company noted that this year’s first quarter includes a leap day, which will add about a single percentage point of growth.

Mueller said a key question for investors going forward is how much freedom the new CEO will have to turn the company in his own direction, and whether or not Bhusri will still be directing things from behind the curtains. “The future will tell if Bhusri will adopt a hands-on style like Larry Ellison at Oracle, or if he will take a more laissez-faire approach,” the analyst said.

Having Eschenbach directing things bodes well for Workday in terms of innovation, the analyst continued. He pointed out that the CEO has much more of a technology than a business background, both from his experience at VMware Inc. and his time as a partner at Sequoia. “So we know he will be very involved with the products side of things, and the company has a very capable chief product officer too, with David Somers holding that role for six years already and having a proven track record,” Mueller added. “Going forward, Workday’s focus on AI-centered innovation and ecosystem growth will be key in fiscal 2025.”

Enhancing talent acquisition with generative AI

Alongside its results, Workday announced its intention to acquire a startup called HiredScore Inc. that sells AI-powered talent orchestration tools, enabling companies to use data-driven insights to aid in recruiting new employees.

The acquisition looks like a fit for Workday, which is a market leader in human resources management software. The company sells cloud-based software as a service that covers areas such as human capital management, financial management and enterprise resource planning. Enterprises use its platform to automate human resource management and business tasks such as payroll and expenses, while tracking and managing employee data. The acquisition is expected to close during the current quarter.

Like many other companies these days, Workday is pushing hard to incorporate generative AI capabilities into its platform. During its Workday Rising conference in September, it revealed that it’s planning to embed AI into the core of its platform to help automate various human resources management tasks, such as payroll and expenses, and tracking and managing employee data.

Workday said the combination of its Talent Management and Skills Cloud platforms, plus HiredScore’s talent orchestration tools, will give customers a more comprehensive, transparent and intelligent offering around talent acquisition and internal mobility, allowing them to streamline their hiring processes and better address the needs of their employees.

More specifically, Workday said HiredScore will enable it to leverage responsible AI to solve recruiting challenges, so companies can match, hire and manage talent. It will also enable customers to manage talent lifecycles more efficiently, and elevate the experience for recruiters and hiring managers.

“HiredScore is the perfect complement to our product portfolio as we look to provide AI solutions that deliver real business value for our customers,” said Eschenbach. “The combination of our AI technologies that keep humans at the center, along with a deep understanding of the workforce landscape, will help organizations thrive and move forever forward.”

Prior to today’s after-hours drop, Workday’s stock was up 12% in the year-to-date and 68% over the last 12 months.

Photo: SiliconANGLE