Workday Inc. (WDAY, Financial) is slated to report its first quarter results for fiscal 2016 on 26th May 2015. The company, which has quickly asserted itself as a Software-as-a-Service (SAAS) has progressively transitioned into the cloud computing and Big Data markets. The company’s rivals include Oracle Corp (ORCL, Financial), Salesforce.com Inc. (CRM, Financial) and Europe's biggest software group SAP SE (SAP, Financial). With Salesforce.com Inc posting better-than-expected results for Q1 2015, all eyes are on rival Workday to see if the company follows suit.
For the fourth quarter of fiscal 2015, Workday reported non-GAAP loss of $0.06 a share on revenues of $226.3 million, up 59% compared to the year-ago quarter. While earnings were in line with the consensus estimate, revenues beat the estimate of $222.85 million by a small margin. Further, the company saw a 64% year-over-year growth in subscription revenues to $181.9 million in Q4 2015. For the full fiscal 2015, Workday posted 68% year-over-year growth in revenues to $787.9 million, while the company’s non-GAAP loss came in a $0.33 a share. While the company announced plans to expand its global footprint, especially in Japan and Europe, Workday also provided guidance for revenues of around $242-$245 million for Q1 2016, indicating an expected 51%-53% year-over-year growth. The company also expects to narrow its earnings loss from $0.13 a share in the year-ago quarter to a loss of $0.08 a share. The company further projected 42%-45% year-over-year revenue growth to $1.115-$1.140 billion for the full fiscal 2016. Workday shares are currently down 2.1% since the company’s last earnings release.
Deals Struck in Last Few Quarters Likely to Bear Fruit
While the better-than-expected Q1 performance of Salesforce.com puts pressure on the Workday stock, experts are looking at an encore by Workday considering strong demand for its services in the high margin human capital management solutions segment. At the same time, the company continues to work towards growth in adoption of its financial management offering with the introduction of newer software versions. Further, with the company continuing to enjoy robust pent-up demand for its products, billings for the first quarter of fiscal 2016 are likely to grow by nearly 60%, signalling strong revenue generation prospects in the future months as well as quarters. At the same time, the company is likely to reap the results of the substantial deals Workday had secured with large clients over the last few quarters. Moreover, the company, which is expected to break even by FY2017, is continuing to grow its market share in the enterprise resource sharing and SaaS segments that are its two key profit drivers.
While the company expects to narrow its losses during Q1 2016, expert consensus is towards the higher end of Workday’s revenues guidance at $245 million for the quarter. For Q2 2016, experts are looking at a loss per share of $0.07, compared to a loss of $0.11 a share in the year-ago quarter, on revenues of $272.4 million, up 46% year-over-year. Concurrently, for the full fiscal 2016, consensus estimates peg Workday’s earnings to narrow from loss of $0.33 a share in FY2015 to $0.21 a share, while revenues are expected to grow 45% to $1.14 billion, again at the higher end of the company’s guidance. The likely narrowing down of Workday’s quarterly and full-fiscal losses indicates the success of the company’s efforts to improve efficiency as well as margins. Consequently, experts find the rate at which the company is moving towards profitability to be encouraging.
Final Thoughts
Workday posted in-line fourth quarter and full fiscal earnings for 2015, with substantial growth in subscription revenues. While the company has beaten earnings and revenues expectations in all of the last eight quarters, experts are convinced of Workday’s business fundamentals and expect the company to announce break-even much before expected. However, although certain firms such as JMP Securities reiterated their ‘Market Outperform’ rating for the Workday stock, the market remains bearish given the lofty price of company’s shares. Workday shares, which have mostly traded in the $81-$92 range in the last three months, currently carry a price estimate of $91.97 a share, and a ‘buy’ guidance.
