Disappointing guidance for the current quarter weighed heavily on Workday Inc.’s stock, which fell sharply in after-hours trading today, even though the company beat forecasts with strong third-quarter results.

Workday reported earnings before certain costs such as stock compensation of $1.89 per share, easily beating the Street’s forecast of $1.76, while revenue increased by a healthy 16% from a year ago, to $2.16 billion today. Analysts had been expecting sales of $2.13 billion.

The company said its subscription revenue in the quarter came to $1.96 billion, also up 16%, albeit only in-line with the Street’s consensus estimate.

All told, Workday delivered $193 million in net income, representing strong growth compared with the $114 million profit it registered a year ago. Its adjusted operating margin came to 26.3%, higher than the Street’s forecast of 25.4%. All told, it was a pretty decent quarter for Workday, which sells software for human resources and financial management.

Chief Executive Carl Eschenbach (pictured) said the performance reflects the growing trust customers place in Workday, as well as the global momentum it’s seeing from its artificial intelligence innovations. “Organizations are increasingly consolidating on the Workday platform to reduce total cost of ownership, simplify their operations and unlock the power of our best-in-class AI solutions,” he boasted.

Workday’s performance in the quarter was all the more impressive because it’s still facing higher-than-usual deal scrutiny, Chief Financial Officer Zane Rowe said on a call with analysts.

Still, Workday is confident that it will be able to grow its business in various industries, including with the U.S. government. Eschenbach said there’s a “huge opportunity” in that market. “Probably more than 80% of all HCM and ERP is still on-premises,” he told analysts, referring to human capital management and enterprise resource planning systems.

The company also thinks it can help U.S. President-elect Donald Trump deliver on his promise of tidying up government agencies and making them run more efficiently. The election winner has said one of the first things he plans to do is create a new, independent “Department of Government Efficiency” headed up by the technology entrepreneur Elon Musk, in order to reduce what he believes are enormous inefficiencies in the way federal and state departments are run.

“People are absolutely looking to drive more economies of scale and more efficiency,” Eschenbach said.

Valoir analyst Rebecca Wettemann told SiliconANGLE that Workday’s main strength is that it can help human resources teams to rationalize their HR stacks, reduce costs and keep all of their money and people data in one system, making AI easier.

“The quality and quantity of Workday’s data is key differentiator too,” the analyst said. “This is important as organizations seek to adopt AI as they need the data to drive quality AI results.”

Though a Trump-led government might benefit Workday in the longer term, investors were doubtlessly disappointed by its immediate prospects. The company called for fourth-quarter subscription revenue of just $2.03 billion, and an operating margin of just 25% in its guidance. That’s a tad short of the Street’s models, which call for $2.04 billion in sales and an operating margin of 25.5%.

The lower guidance prompted many investors to bail on the company, and its stock fell more than 10% in extended trading.

Wettemann said the guidance likely acknowledges a number of growth headwinds faced by the company going forward. For one thing, it’s facing growing competition from Oracle Corp. in both the HCM and financial management segments.

“It’s also being challenged by emerging cloud HCM vendors such as HiBob, which are moving upmarket,” she said. “As these challengers become more mature, they’ll be more effective competitors against Workday, whose software remains costly and complex to implement and support.”

During the quarter, Workday acquired a company called Evisort Inc. that develops contract lifecycle management software. It plans to leverage Evisort’s technology to power a new breed of AI agents that will be able to perform tasks such as identifying contractual inefficiencies and renewing deals. They’re expected to launch in early access early next year.

AI agents are powered by advanced algorithms that enable them to go beyond generating answers to questions and images, and perform tasks on behalf of people with minimal supervision. It’s one of the biggest trends in AI right now, and Workday faces competition from rivals such as Salesforce Inc. and ServiceNow Inc., which have also fielded armies of their own AI agents.

Workday is definitely a key player in that area, though. Alongside the acquisition of Evisort, it debuted a number of AI agents that are available right now. They include a “recruiter” agent that can automate tasks such as sourcing job candidates, writing job descriptions and arranging interviews, as well as an “expenses” agent that can create and submit expense reports. There’s also a “succession” agent, which will identify future leaders within an organization and recommend updates to succession plans, plus an “optimize” agent that can help to ease bottlenecks in business workflows.

“We think they’re going to have a nice impact on bookings and revenue as we go into the new year,” Eschenbach said of the new agents.

In other news, Workday said today that Rob Enslin, a high-profile executive who previously worked at Google LLC and SAP SE, and most recently served as co-CEO of UiPath Inc., will join the company as its new chief commercial officer. Enslin stepped down from his role at UiPath in June.

The after-hours action means that Workday’s shares are now down 2% in the year to date, compared with a 26% gain in the broader S&P 500 Index.

Photo: SiliconANGLE