Workday Inc. WDAY, a leading provider of enterprise-level software solutions for financial management and human resource domains, reported better-than-expected fiscal third-quarter results. Non-GAAP earnings of $1.89 per share surpassed the Zacks Consensus Estimate by 17 cents.
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Revenues surged 16% year over year to $2.16 billion. The figure surpassed the Zacks Consensus Estimate by $33 million. Healthy traction in multiple verticals boosted the top line.
Workday, Inc. Price, Consensus and EPS Surprise
Workday, Inc. price-consensus-eps-surprise-chart | Workday, Inc. Quote
WDAY’s Segment Performance
Workday generated $1.959 billion in subscription revenues, up 15.8% year over year. The figure marginally surpassed our estimate of $1.955 billion. Solid traction in the government and higher education vertical propelled the net sales growth. Several public sector entities and education institutes including the Defense Intelligence Agency, Lake County Illinois, Maryland General Assembly, New Jersey Institute of Technology and University System of Georgia, have opted to utilize WDAY solutions.
The company announced that its professional and business services have crossed the $1 billion mark in annual recurring revenues, backed by multiple customer wins. Retail and hospitality verticals have already reached the mark earlier this year.
Workday has been placing a strong emphasis on AI-native product development. Its current AI-solutions suite which includes Talent Optimization, Extend Pro and Recruiter Agent has been gaining strong popularity. The company introduced Illuminate an AI-powered solution to help businesses with some of the most complex processes in HR and finance.
Workday is also witnessing positive trends in the international market. The company secured its largest-ever customer win in public sector with the Department for Science, Innovation and Technology in U.K. Deal wins with Decathlon in France and Goldbeck in Germany also expanded its footprint in Europe. In the APAC region, the company also secured major deal wins in Singapore and Australia.
Professional services revenues totaled $201 million. The figure surpassed our estimate of $175 million.
WDAY’s Financial Position
In the October quarter, sales and marketing costs rose to $620 million from $538 million in the year-earlier quarter. General and administrative expenses were $198 million up from $176 million in the year-ago quarter. Product development costs increased to $647 million from $619 million in the year-ago quarter.
In the fiscal third quarter, Workday generated $406 million in cash from operations compared with $451 million in the year-ago quarter. In the first nine months of fiscal 2025, the company generated $1.34 billion in cash compared with $1.15 billion in the prior-year period. As of Oct. 31, 2024, the company had $1.31 billion in cash and cash equivalents, with $2.98 billion of long-term debt.
In the fiscal third quarter, this Zacks Rank #2 (Buy) company bought back 0.6 million shares worth $157 million. At the quarter’s end, the company had $902 million left under its buyback program.
Workday’s Guidance
For fiscal 2025, the company expects subscription revenues of $7.703 billion, indicating growth of 17% year over year. Professional services revenues are expected at $712 million. The non-GAAP operating margin is anticipated to be 25.5%. Capital expenditure is approximated to be around $300 million. Operating cash flow is expected at $2.35 billion.
For the fourth quarter of fiscal 2025, Workday expects Subscription services revenues to be $2.025 billion. Revenues from Professional services are estimated to be $155 million. For the fiscal fourth quarter, the non-GAAP operating margin is approximated to be 25%.
The company is steadily investing in key growth areas and integrating AI across its product suite to expand portfolio offerings. Management is also putting a strong emphasis on enhancing efficiency across its business operations. These factors combined with growing demand for Workday platforms across industries will likely drive long-term growth.
For fiscal 2026, the company expects to generate $8.8 billion in subscription revenues, indicating 14% year-over-year growth. Non-GAAP operating margin is anticipated at 27.5%.
Other Stocks to Consider
Zillow Group, Inc. ZG carries a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the last reported quarter, it delivered an earnings surprise of 9.38%. ZG delivered an earnings surprise of 25.47%, on average, in the trailing four quarters. The company is witnessing solid momentum in rental revenues, driven by growth in both multi and single-family listings, which is a positive factor.
InterDigital IDCC sports a Zacks Rank #1 at present. In the last reported quarter, it delivered an earnings surprise of 114.47%.
It is a pioneer in advanced mobile technologies that enable wireless communications and capabilities. The company designs and develops a wide range of advanced technology solutions used in digital cellular, wireless 3G, 4G and IEEE 802-related products and networks.
Plexus Corp. PLXS flaunts a Zacks Rank of 1 presently. It is a leading electronic contract manufacturing services provider to original equipment manufacturers covering a wide range of industries. In the last reported quarter, PLXS delivered an earnings surprise of 20.92%.
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