Workday (WDAY, Financial) reported impressive Q1 2026 results, with EPS of $2.23 surpassing expectations. This continues a trend of significant EPS beats in recent quarters, driven by a 13.4% increase in subscription revenue, effective cost management, and a notable expansion in non-GAAP operating margins. Despite this, WDAY's stock is trading lower due to investor disappointment over its cautious Q2 subscription revenue guidance of $2.16 billion and its decision to reaffirm FY26 subscription revenue guidance at $8.8 billion, instead of raising it.
Key Highlights:
- Subscription revenue rose 13.4% year-over-year to $2.059 billion, slightly above the company's guidance of $2.05 billion. This growth was fueled by strong adoption of AI-enhanced enterprise software, with significant customer wins from companies like Dover Corporation, Mutual of Omaha, and United Airlines.
- New AI-driven products, such as Illuminate Agents and Evisort’s AI-powered contract management solutions, contributed to revenue growth, with new annual contract value across AI products more than doubling year-over-year.
- Subscription revenue growth slowed from 15.9% in Q4 2025 and 18.8% in Q1 2025, due to factors like moderating customer headcount growth and increased deal scrutiny amid economic uncertainties.
- Non-GAAP operating margin improved to 30.2% in Q1 2026, up from 25.9% last year, highlighting operational efficiency and cost discipline. This was achieved through scalable revenue growth from high-margin subscription services, reduced reliance on lower-margin professional services, and strategic cost management.
- WDAY raised its FY26 non-GAAP operating margin guidance to 28.5% from 28.0%, reflecting confidence in continued margin improvement.
- WDAY's Q2 subscription revenue guidance of $2.16 billion, representing 13% year-over-year growth, met analyst expectations but did not exceed them, resulting in investor skepticism about near-term growth prospects.
WDAY's Q1 results demonstrated its capability to deliver strong EPS results, backed by robust subscription revenue growth and significant margin expansion. However, the cautious Q2 and FY26 subscription revenue guidance, which only met expectations, has overshadowed these achievements, leading to a decline in stock value post-earnings.
