Workday Inc - Class A

Workday Inc. is a leader in cloud software for back-office business functions, including human capital management and financial management. Despite concerns that AI could disrupt application software vendors, we believe these fears are overstated. The retention rates, margins, and subscription growth for Workday remain strong, with subscription revenue growing 14% and a 12-month backlog increasing by 16%. The management has reiterated full-year subscription revenue guidance while raising operating margin guidance, indicating confidence in the business's durability and resilience against potential AI threats.

Workday Inc. (WDAY) is a leader in cloud software for back-office business functions, spanning human capital management (HCM), financial management, and adjacent ERP products, with 60% of the Fortune 500 as HCM customers. Despite concerns that AI could disrupt application software vendors, the most recent quarter did not show evidence of this. Subscription revenue grew 14%, 12-month backlog grew 16%, retention remained industry leading, and margins expanded. We continue to believe the disruption thesis significantly underestimates enterprise switching costs and the non-code moat that makes Workday durable.

Workday Inc. (WDAY) is a leader in cloud software for back-office business functions, spanning human capital management (HCM), financial management, and adjacent ERP products, with 60% of the Fortune 500 as HCM customers. Despite concerns that AI could disrupt application software vendors, the most recent quarter did not show evidence of this. Subscription revenue grew 14%, 12-month backlog grew 16%, retention remained best-in-class, and margins expanded. We continue to believe the disruption thesis significantly underestimates enterprise switching costs and the non-code moat that makes Workday durable.

Workday Inc. (WDAY) is a leader in cloud software for back-office business functions, spanning human capital management (HCM), financial management, and adjacent ERP products, with 60% of the Fortune 500 as HCM customers. Despite investor concerns that AI could disrupt application software vendors, the most recent quarter showed no evidence of this. Subscription revenue grew 14%, 12-month backlog grew 16%, retention remained best-in-class, and margins expanded. The disruption thesis significantly underestimates enterprise switching costs and the non-code moat that makes Workday durable.

Workday Inc. (WDAY) is a leader in cloud software for back-office business functions, with 60% of the Fortune 500 as HCM customers. Despite concerns that AI could disrupt application software vendors, the most recent quarter did not show evidence of this. Subscription revenue grew 14%, the 12-month backlog grew 16%, and retention remained industry leading. Management reiterated full-year subscription revenue guidance while raising operating margin guidance. The disruption thesis significantly underestimates enterprise switching costs and the non-code moat that makes Workday durable.

Workday Inc. is a leader in cloud software for back-office business functions, with 60% of the Fortune 500 as HCM customers. Despite investor concerns about AI disrupting application software vendors, the most recent quarter showed no evidence of this disruption. Subscription revenue grew 14%, the 12-month backlog grew 16%, and retention remained one of the industry leading metrics. Margins expanded, and management reiterated full-year subscription revenue guidance while raising operating margin guidance, reinforcing our belief in Workday's durability and competitive position.

Workday Inc. (WDAY) is a leader in cloud software for back-office business functions, with 60% of the Fortune 500 as HCM customers. Despite concerns that AI could disrupt application software vendors, the most recent quarter showed no evidence of this disruption. Subscription revenue grew 14%, and the 12-month backlog grew 16%. Retention remained best-in-class, margins expanded, and management raised operating margin guidance. The disruption thesis underestimates enterprise switching costs and the non-code moat that makes Workday durable.

Over the Quarter Workday was trimmed reflective of AI disruption concerns to Workday's business model. As agentic AI reduces headcount growth in finance and HR functions, the seat-based pricing model faces a structural challenge, while AI-driven cost pressures and defensive spending are compressing margins. FY27 guidance is signalling decelerating revenue and margin growth. Whilst Workday’s platform remains substantially cash generative, with full-year free cash flow rising 27% to $2.78 billion and subscription backlog reaching $28.1 billion, up 12%, it remains prudent to moderate the position size against structural concerns and a wider range of outcomes.

Workday continues to report strong customer retention—an impressive 97%—and expanding product capabilities. Its competitive advantages are rooted in domain expertise, deep integrations, mission-critical workflows, and years of embedded customization—not simply underlying code. We believe it is well positioned to monetize AI through enhanced offerings rather than be displaced by it. Consensus earnings estimates for Workday have moved higher, suggesting the selloff reflects concerns about long-term profit durability rather than near-term fundamentals. We do not share this view.

Workday was the largest absolute detractor in the quarter, driven by increasing concerns over the potential disruption to SaaS platforms. The market generally sold software indiscriminately, and this growing narrative negatively impacted Workday's performance. The manager noted that 'higher seat-risk businesses are the smallest bucket of our software exposure and represent <3% of the total portfolio (Workday, Atlassian, and Figma).' This indicates a cautious stance on Workday's future prospects amidst the evolving landscape influenced by AI.