Workday Inc.’s stock soared more than 11% in extended trading today after it delivered a solid earnings and revenue beat, announced a new $1 billion stock buyback plan and provided an upbeat long-term forecast.
The shares initially lost ground late today after the human resources and financial software developer posted guidance for the next quarter and full year that came in only slightly ahead of estimates. However, it rebounded shortly after, when Workday executives said on a conference call they’re confident about long-term growth in the next couple of years.
For the fiscal 2025 second quarter ended in July, the company reported earnings before certain costs such as stock compensation of $1.75 per share, ahead of Wall Street’s consensus estimate of $1.65. Revenue for the period came to $2.09 billion, up 17% from a year earlier, and ahead of the Street’s target of $2.07 billion.
Net income for the quarter came to $1.2 billion, rebounding from a $126 million loss in the year-ago period. Workday said this number was boosted by a onetime $1.1 billion tax gain.
Workday Chief Executive Carl Eschenbach (pictured) said the company delivered a solid quarter of growth and operating margin expansion. “Through the power of our unified, AI-powered platform and our expanding partner ecosystem, we’re reimagining HR and Finance to consistently increase the value we deliver to our customers,” he said.
During the quarter, Workday generated $1.903 billion in subscription revenue, plus $182 million in professional services revenue. Both of those numbers were better than expected, with analysts forecasting $1.897 billion and $175 million, respectively.
Looking to the third quarter, Workday said its model calls for total revenue of $1.973 billion and subscription revenue of $1.81 billion, compared with the Street’s estimates of $1.917 billion and $1.758 billion.
In the conference call, Eschenbach noted that the company expects it will continue seeing elevated deal scrutiny, as it did in the previous quarter, along with more moderate growth in its customers’ head counts. Even so, he insisted that the company’s human resources products are resonating, as they enable customers to be more productive. “We see an opportunity to exponentially increase the value to our customers by reimagining end-to-end HR and finance processes through the power of AI,” Eschenbach said.
For the full fiscal year, Workday reiterated its earlier call for total subscription revenue of $7.7 billion to $7.725 billion.
Michael Schulman, an analyst with Running Point Capital, told Reuters that there were a few positives to take away from the company’s latest outlook, “including a 17% increase in subscription revenue and a $1 billion share buyback program.”
Investors initially seemed disappointed with the guidance, and in just a few minutes Workday’s stock plunged more than 10%. However, it almost immediately rebounded to capture solid gains when executives on the call turned their attention to the company’s longer-term prospects.
Workday Chief Financial Officer Zane Rowe said the company forecasts 15% annual subscription revenue growth in fiscal 2026 and fiscal 2027. He added that the company also believes it will expand its adjusted operating margin to 30% over the same period.
That’s a big improvement. For context, Workday posted a margin of just 24.9% in the quarter just gone.
“Our focus remains on leveraging the power of the platform to deliver durable, long-term, top- and bottom-line growth,” Rowe told analysts.
During the quarter, Workday announced it had acquired a company called HiredScore Inc. for an undisclosed sum, describing it at the time as a leading provider of “AI-powered talent orchestration solutions.”
The company has wasted little time in integrating HiredScore’s capabilities into its platform, saying today that HiredScore AI for Recruiting and Talent Mobility are now available within Workday to boost recruiter productivity and empower hiring managers.