Workday, Inc. WDAY recorded strong Subscription revenues in the recently released third-quarter fiscal 2025 results. This portrayed the strength of its existing customer relationships across industries and the growing clout of its artificial intelligence (AI) innovations as more organizations are consolidating on the Workday platform.
Subscription services revenues totaled $1.96 billion, up from $1.69 billion in the year-ago quarter. At the fiscal third-quarter end, the 12-month subscription revenue backlog was $6.98 billion, up 15.3% year over year, driven by higher contract renewals. Total subscription revenue backlog increased 20.3% year over year to $22.19 billion.
With an improved market share, a focus on innovation and streamlined operations, Workday expects steady growth in the Subscription business in the impending quarters. For the fourth quarter of fiscal 2025, the company expects Subscription services revenues of $2.025 billion, up 15% year over year. For fiscal 2025, management anticipates Subscription revenues of $7.703 billion, indicating growth of 17% year over year, while for fiscal 2026, Subscription revenues are likely to grow 14% to $8.8 billion.
Key Growth Drivers for WDAY
Workday’s revenues continue to benefit from high demand for its Human Capital Management (HCM) and financial management solutions. The company’s cloud-based business model and expanding product portfolio have been the primary growth drivers. Moreover, the growing clout of Workday Prism Analytics and Adaptive Insights business planning cloud offerings holds promise. Based on its expanding product portfolio, we believe that Workday has strong growth prospects.
Workday’s HCM suite of applications demonstrates solid growth momentum, driven by the transition of organizations to the cloud. A steady flow of customers portrays a high customer satisfaction rate, which bodes well for its long-term business model. Workday is also gaining traction in the international market, driven by higher digital transformation initiatives across Finance and HR domains, in tune with evolving market conditions.
The company is expanding its portfolio beyond core HCM solutions into the financial domain. It is customizing them for diverse industries and verticals, such as education, the public and financial services, among others. This has helped it witness strong renewals and expand its customer base as business enterprises aim to consolidate spend and improve efficiency levels.
Will This Aid WDAY?
With solid demand trends, the company is confident about its growth opportunities in the remainder of fiscal 2025 and beyond. It plans to focus on higher investments in key industries and innovation efforts to expand its footprint within the partner ecosystem. This, in turn, is likely to translate into healthy top-line growth as anticipated by the company through its Subscription business.
Workday has a long-term earnings growth expectation of 21% and delivered an earnings surprise of 9.3%, on average, in the trailing four quarters. With improved market demand across its portfolio on the back of a flexible business model and solid cash flow, the stock appears poised for further uptrend in the future.
WDAY’s Zacks Rank
Workday currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Key Picks
InterDigital, Inc. IDCC sports a Zacks Rank of 1 at present. It has a long-term growth expectation of 17.44%. IDCC is a pioneer in advanced mobile technologies enabling wireless communications and capabilities. The company designs and develops a whole range of advanced technology solutions for use in digital cellular as well as wireless 3G, 4G, and IEEE 802-related products and networks.
Arista Networks, Inc. ANET, carrying a Zacks Rank #2, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experiences. Arista delivered an earnings surprise of 14.8%, on average, in the trailing four quarters. It is well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
Ericsson ERIC carries a Zacks Rank #2 at present. In the last reported quarter, it delivered an earnings surprise of 22.22%. A leading provider of telecom services, communication networks, and support solutions, Ericsson is also diversifying into the provision of ICT (information and communications technology) solutions.
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