Workday's Q2 Loss Narrower Than Expected - Analyst Blog

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Enterprise cloud applications provider for human resource and finance, Workday Inc. ( WDAY ) reported fiscal second-quarter 2014 loss per share of 19 cents, narrower than the Zacks Consensus Estimate of a loss of 24 cents per share.

Quarter Details

Revenues surged 71.5% from the year-ago quarter to $107.6 million, which comfortably surpassed the Zacks Consensus Estimate of $101.0 million. Subscription revenues (75.4% of revenues) soared 92.2% year over year to $81.1 million in the quarter. Professional revenues (24.6% of revenues) increased 29.0% year over year to $26.4 million.

Workday ended the second quarter with more than 500 customers in total. This apart, the company announced plans to deliver Workday Payroll for UK and Workday Payroll for France, which are targeted toward meeting the full spectrum of payroll needs. The applications are expected to be available in 2015 and 2016, respectively.

Most of the contracts signed during the quarter were of just over 3.5 years in duration. This is an increase from the prior two quarters, mostly on the back of a couple of large deals with five year terms. The company focuses its selling efforts primarily on such short-term contracts. Management believes the higher renewal rates and economics of these contracts are favorable for the company in the long term.

Operating expenses rose sharply to $99.1 million from $60.8 million reported in the year-ago quarter due to an 80.8% increase in general & administrative expense, 74.8% rise in research & development expense and a 49.0% jump in sales & marketing expense.

As a result of higher operating expenses, Workday reported operating loss (including share- based compensation) of $32.3 million, wider than a loss of $26.4 million in the year-ago quarter. Net loss (including stock-based compensation) was $33.2 million or 19 cents per share.

Cash & cash equivalents and marketable securities were $1.29 billion compared with $805.8 million in the previous quarter. Cash used in operations during the quarter was $12.9 million.

Guidance

For fiscal third quarter 2014, total revenue is expected in the range of $115 million to $118 million, up 58% to 62% compared to the prior year. Subscription revenues are anticipated to be within a range of $88 million to $91 million, reflecting year-over-year growth of 71% to 76%.

For fiscal 2014, Workday expects revenues to be in the range of $436.0 million to $444.0 million. Professional Services revenues are projected to decrease seasonally in fiscal fourth quarter 2014.

Recommendation

We believe that Workday's innovative product pipeline will help it to gain significant footprint in the human resource and finance markets. However, we believe that the company will face serious competition from large established players such as Oracle Inc . ( ORCL ), Automatic Data Processing, Inc. ( ADP ) and SAP AG ( SAP ) in both of its operational markets.

Currently, Workday has a Zacks Rank #3 (Hold).



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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ADP , ORCL , SAP , WDAY

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