Workday (WDAY) Q3 Earnings Beat Estimates, Revenues Surge Y/Y

Workday Inc. WDAY reported strong third-quarter fiscal 2024 results, with the bottom and the top line surpassing the respective Zacks Consensus Estimate. The company reported a top-line expansion year over year. Solid demand for its financial and human capital management (HCM) solutions in various end markets, including energy, automotive, transport, consumer packaging and healthcare, are key growth drivers. The ongoing investment initiatives in Japan to expand its market opportunity in the region is a positive. Focus on AI incorporation and introduction of AI-native products such as Workday AI Marketplace acted as a tailwind.

Net Income

Net income on a GAAP basis was $113.7 million or 43 cents per share against a net loss of $74.7 million or a loss of 29 cents per share in the year-ago quarter. The year-over-year growth was primarily due to higher revenues as the strategy to incorporate AI into the core of its products resonated well with the customers.

Non-GAAP net income rose to $407.8 million or $1.53 per share from $257.9 million or 99 cents per share in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 13 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 $1,865.7 million, up from $1,599.1 million and surpassed the Zacks Consensus Estimate by $21 million. Growing adoption of cloud financial and HCM products boosted the top line.

In the current macroeconomic situation, enterprises are looking to scale and drive productivity in their operations. Workday successfully capitalizes on these trends as businesses continue to leverage its solutions to reskill and upskill the workforce and augment employee experience, reducing attrition. Management initiatives to infuse generative AI and conversational AI features in Workday solutions also yielded positive results. Developers are utilizing Workday AI services in Workday Extend to build intelligent applications on the Workday Platform, which are streamlining business processes and enhancing decision-making.

Workday is witnessing increasing market traction for its HCM solutions. Backed by multiple new customer wins, such as Greene King Brewing, Group 1 Automotive and the U.S. Department of Energy, it crossed 5,000 customers for its HCM product suite. Additionally, the company also secured several contract renewals and expansions with industry leaders such as Mondelez Global, Sonoco Products Company, BBVA, Carl Zeiss and Southwest Airlines. Strong new ACV bookings enable Workday to surpass the $1 billion ARR (annual recurring revenue) in the EMEA region.

Subscription services revenues totaled $1,691.1 million, up from $1,432.4 million in the year-ago quarter. Net sales surpassed our revenue estimate of $1,678.5 million. At the end of the quarter, the 24-month subscription revenue backlog improved 23% to $10.58 billion. The growth was primarily driven by increased contract renewals.

Revenues from professional services were $174.6 million compared with $166.7 million in the prior-year quarter. The top line beat our revenue estimate of $165.1 million.

Other Details

Operating income during the quarter was $87.9 million against an operating loss of $26.3 million in the year-ago quarter. Non-GAAP operating income was $462.1 million, up from $314.2 million a year ago, with respective margins of 24.8% and 19.7%.

Cash Flow & Liquidity

During the third quarter of fiscal 2024, the company generated $450.8 million of cash from operating activities compared with $408.7 million in the prior-year quarter. As of Oct 31, 2023, it had cash and cash equivalents and marketable securities of $6.88 billion with long-term debt of $2,978.8 million.

Outlook

For fiscal 2024, the company raised its guidance for subscription revenues to $6,598 billion from the previously estimated range of $6.570-$6.590 billion, indicating growth of 19% year over year. Professional services revenues are expected to be $652 million. The non-GAAP operating margin is projected to be 23.8%, up from the prior estimation of 23.5%. Capital expenditure is approximated to be around $250 million.

For the fourth quarter of fiscal 2024, Workday expects Subscription services revenues to be $1.755 billion. Revenues from Professional services are estimated to be $158 million. For the fiscal fourth quarter, the non-GAAP operating margin is approximated to be 23.5%.

Zacks Rank & Stocks to Consider

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

Model N Inc MODN, sporting a Zacks Rank #1 (Strong Buy), delivered an earnings surprise of 20.78%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 3.33%. You can see the complete list of today’s Zacks #1 Rank stocks here.

MODN provides revenue management solutions for life sciences and technology companies, including applications for configuration, price, quote, rebate management and regulatory compliance.

NVIDIA Corporation NVDA, currently sporting a Zacks Rank #1, delivered an earnings surprise of 18.99%, on average, in the trailing four quarters. In the last reported quarter, it pulled off an earnings surprise of 19.64%.

NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit. Over the years, the company’s focus evolved from PC graphics to artificial intelligence-based solutions that support high-performance computing, gaming and virtual reality platforms.

Arista Networks, Inc. ANET, carrying a Zacks Rank #2 (Buy), 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 delivered an earnings surprise of 12%, on average, in the trailing four quarters.

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

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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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