Workday (WDAY) 2nd Quarter Earnings: What to Expect

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Cloud software stocks are surging higher, driven by better-than-expected earnings results received Tuesday from Salesforce (CRM) which not only surpassed Street estimates, but also boosted full-year revenue and profit guidance.

One of the biggest beneficiaries is Workday (WDAY) which saw its stock surged to two-year highs Wednesday. The enterprise cloud specialist is set to report second quarter fiscal 2021 earnings results after the closing bell Thursday. Investors are eager to learn whether Workday now sustain its momentum. Prior to Wednesday, Workday stock — up 2% over the past six moths — was largely ignored when compared to the likes of Microsoft (MSFT), Adobe (ADBE) and the aforementioned Salesforce.

Workday’s underperformance suggested the market was still taking a wait-and-see approach with the company’s evaluation and growth prospects. Notably, this is despite Workday’s extensive collection of cloud-based solutions such as accounting, financial reporting, analytics, compensation, among others — service offerings, which are based on increasing business efficiency, while lowering costs. These offerings, particularly as businesses adjust to a remote-work environment, would seem to offer Workday a pathway to multiple years of growth. Its guidance and billings forecast on Thursday will need to affirm this.

For the quarter that ended July, Wall Street expects the Pleasanton, CA.-based company to earn 66 cents per share on revenue of $1.04 billion. This compares to the year-ago quarter when earnings came to 44 cents per share on revenue of $887.75 million. For the full year, ending in December, earnings are projected to rise 20% year over year to $2.26 per share, while full-year revenue of $4.19 billion would rise 15.6% year over year.

Owing to the digital transformation of enterprises taking place across all industries, strong revenue and earnings growth projections are commonplace for Workday, which has topped or matched the Street’s earnings estimates in twelve straight quarters. This includes growing market share in two of its main profit drivers — SaaS and enterprise resource planning. And, even though pandemic-related uncertainties remain, Workday should remain an essential aspect of business expenses in the quarters ahead.

In the first quarter, Workday saw revenues rise 23% year over year to $1.02, with subscription revenues rising 26% to $882 million. It was encouraging that subscription revenue accelerated two percentage points from the fourth quarter. Just as impressive, its Q1 adjusted operating income came to $130.5 million, some 13% of revenue. And given the growing demand for cloud-based services evidenced in Salesforce’s numbers, Workday is poised to beat on Thursday.

The question, however, will be with its guidance. Given the ongoing uncertainty surrounding the pandemic, there are still signs that companies are delaying purchases and postponing IT projects. It would be understandable if the company lowballs guidance or opt to not give one. But with the stock trading at two-year highs, strong guidance (double-digit growth) and upside billings forecast will be needed to allay investor concerns about valuation and its competitive position.

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

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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