Shares of Workday Inc. fell sharply after the company issued a disappointing forecast for the current quarter, fueling investor anxieties about the impact of artificial intelligence.
Despite solid results for the past quarter, with earnings per share of $2.47 and revenue up 14% to $2.53 billion, Workday's outlook overshadowed these gains. The company projects an adjusted operating margin of 30.5% and $2.335 billion in subscription revenue for the current quarter, both below analyst expectations. For fiscal year 2027, Workday anticipates a 30% margin with subscription revenue between $9.93 billion and $9.95 billion, indicating slower growth.
Concerns over AI's potential to disrupt software-as-a-service companies like Workday have intensified, contributing to a 39% year-to-date stock decline before the latest trading drop. The company also faces leadership changes, with CEO Carl Eschenbach stepping down after three years and co-founder Aneel Bhusri reassuming the CEO role.
Bhusri addressed the AI threat, dismissing claims that HR and ERP systems will be replaced. He emphasized Workday's position at the core of enterprise workflows, highlighting opportunities to integrate AI for "real, measurable value." The company is actively incorporating generative AI features and has reported over $400 million in annual recurring revenue from its AI products. Recent initiatives include a new AI agent for employee requests and the acquisition of Pipedream Inc., a startup focused on connecting AI agents to external services.
Company executives attributed the soft guidance to longer closing times for deals with large customers, suggesting a focus on long-term growth initiatives, including their AI investments.