Workday’s ‘Tepid’ Guidance Sinks The Stock But Bullish Retail Ready To Buy The Dip

Workday’s tepid guidance and the likelihood of the remaining performance obligation growth declining for the fifth consecutive quarter prompted an analyst to step to the sidelines.

Shares of Workday, Inc. ($WDAY) fell over 7% by mid-session on Wednesday after the artificial intelligence-enabled enterprise platform provider announced fiscal-year 2025 third-quarter results.

The Pleasanton, California-based company’s non-GAAP earnings for the quarter was at $1.89, up from $1.56 reported for the year-ago quarter. The bottom-line result also exceeded the consensus estimate of $1.76. 

Revenue climbed 15.8% year-over-year (YoY) to $2.16 billion, exceeding the consensus estimate of $2.13 billion. Subscription accounted for $1.96 billion of the total revenue, coming in line with the guidance. 

The company noted that the 12-month subscription revenue backlog was $6.98 billion, up 15.3% YoY. 

Workday’s software platform aids in human resource and financial management and it is also a vendor of student information management system software. 

Non-GAAP operating margin expanded YoY from 24.8% to 26.3%. 

At the end of the quarter, Workday had cash, cash-equivalents and marketable securities of $7.16 billion. 

Commenting on the results, Carl Eschenbach, CEO of Workday, said, “Workday's solid performance in Q3 reflects the trust our customers place in us across industries, the global momentum around our AI-driven innovations, and the strength of our partner ecosystem.” 

Looking ahead, Workday said it expects fourth-quarter subscription revenue of $2.03 billion, representing 15% growth, and non-GAAP operating margin of 15%.

The company revised its full-year subscription revenue guidance from the $7.70 billion-$7.725 billion range it issued in late-August to $7.703 billion

Sell-side analysts reacted mostly negatively to Workday’s results. Piper Sandler downgraded the stock from “Overweight” to “Neutral,” citing the tepid guidance and the likelihood of the remaining performance obligation growth declining for the fifth consecutive quarter.

Workday shares, which have shed a little over 2% year-to-date, were down an incremental 7.12% at $250.95 by the mid-session.

On Stocktwits platform, retail sentiment stayed ‘extremely bullish’ (92/100) despite the setback to the stock. Retail chatter continued at ‘extremely high’ levels.

A user lauded the ‘excellent growth’ and saw the pullback as a buying opportunity. Another said the sell-off is overdone.