Workday (WDAY) Beats Q1 Earnings Estimates on Solid Revenues

Workday Inc. WDAY reported solid first-quarter fiscal 2025 results, with the bottom and the top lines surpassing the respective Zacks Consensus Estimate.

The company reported revenue growth year over year, driven by solid customer wins across various industries, including education, financials, healthcare and more. Strategic expansions and strong contract renewals within the existing customer base also drove the top line. Management’s strong focus on innovations, AI integration and international expansion are positive factors.

Net Income

Net income on a GAAP basis was $107 million or 40 cents per share compared with break-even results in the year-ago quarter. Despite higher operating expenses, the bottom line improved significantly due to higher revenues.

Non-GAAP earnings rose to $1.74 per share from $1.33 per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 17 cents.

Workday, Inc. Price, Consensus and EPS Surprise Workday, Inc. Price, Consensus and EPS Surprise

Workday, Inc. price-consensus-eps-surprise-chart | Workday, Inc. Quote

Revenues

Net sales during the quarter were $1.99 billion, up from $1.68 billion in the year-ago quarter, backed by rising demand for the company’s HCM (Human Capital Management) and financial management solution. The top line surpassed the Zacks Consensus Estimate by $17 million.

The strong revenue growth accentuates the diversity and robustness of Workday’s product portfolio. Along with several new customer wins, the company witnessed several strategic expansions and contract renewals within its existing customer base.

Subscription services revenues contributed $1.82 billion, up from $1.53 billion in the year-ago quarter. Net sales from Subscription services surpassed our estimate of $1.81 billion. At the end of the quarter, the 12-month subscription revenue backlog was $6.6 billion, up 17.9% year over year, backed by higher contract renewals. Total subscription revenue backlog increased 24.2% to $20.68 billion.

Revenues from Professional services were $175 million compared with $156 million in the prior-year quarter. The top line beat our estimate of $163 million.

Other Details

Operating income during the quarter was $64 million against an operating loss of $20 million in the year-ago quarter. Non-GAAP operating income was $515 million, up from $396 million a year ago, with respective margins of 25.9% and 23.5%.

Cash Flow & Liquidity

During the first quarter of fiscal 2025, the company generated $372 million of cash from operating activities compared with $277 million in the prior-year quarter. Workday repurchased $134 million worth of shares during the quarter at $267.09 per share.

As of Apr 30, 2024, the company had cash and cash equivalents and marketable securities of $7.18 billion with long-term debt of $2.98 billion.

Outlook

For fiscal 2025, the company revised its Subscription revenue guidance in the range of $7.700 billion to $7.725 billion, down from $7.725 billion to $7.775 billion expected earlier, suggesting growth of 17% year over year (down from 17-18%). Professional services revenues are expected to be $650-$660 million (up from $630-$640 million expected earlier). Non-GAAP operating margin is projected to be 25%. Capital expenditure is estimated to be around $330 million.

For the second quarter of fiscal 2025, Workday expects Subscription services revenues to be $1.895 billion. Revenues from Professional services are estimated to be $175 million. For the fiscal second quarter, non-GAAP operating margin is approximated to be 24.5%.

Zacks Rank & Key Picks

Workday currently carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arista Networks, Inc. ANET, sporting a Zacks Rank #1, 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 experience. Arista has a long-term earnings growth expectation of 15.7% and delivered an earnings surprise of 15.4%, on average, in the trailing four quarters.

It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.

Ubiquiti Inc. UI, carrying a Zacks Rank #2 (Buy) at present, is a key pick in the broader industry. Headquartered in New York, it offers a comprehensive portfolio of networking products and solutions for service providers and enterprises at disruptive prices.

It boasts a proprietary network communication platform that is well-equipped to meet end-market customer needs. In addition, it is committed to reducing operational costs by using a self-sustaining mechanism for rapid product support and dissemination of information by leveraging the strength of the Ubiquiti Community.

NVIDIA Corporation NVDA, sporting a Zacks Rank #1, is another key pick in the broader industry. It is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. Over the years, the company’s focus has evolved from PC graphics to AI-based solutions that now support high-performance computing, gaming and virtual reality platforms.

The company’s GPU platforms are playing a major role in developing multi-billion-dollar end-markets like robotics and self-driving vehicles. NVIDIA has a long-term earnings growth expectation of 30.9% and delivered an earnings surprise of 18.4%, on average, in the trailing four quarters.

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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 Nasdaq, Inc.

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