COMPANY PROFILE

Workday is a leading provider of enterprise cloud applications for finance and human resources. Founded in 2005, Workday delivers financial management, human capital management, and analytics applications designed for the world’s largest companies, educational institutions, and government agencies. Organizations ranging from medium-size businesses to Fortune 50 enterprises have selected Workday.

Recent Earnings

Fiscal 2020 Second Quarter Results

• Total revenues were $887.8 million, an increase of 32.2% from the second quarter of fiscal 2019. Subscription revenue was $757.2 million, an increase of 33.9% from the same period last year.
  

• Operating loss was $122.5 million, or negative 13.8% of revenues, compared to an operating loss of $89.0 million, or negative 13.2% of revenues, in the same period last year. Non-GAAP operating income for the second quarter was $117.5 million, or 13.2% of revenues, compared to a non-GAAP operating income of $68.1 million, or 10.1% of revenues, in the same period last year.1
  

• Net loss per basic and diluted share was $0.53, compared to a net loss per basic and diluted share of $0.40 in the second quarter of fiscal 2019. Non-GAAP net income per diluted share was $0.44 compared to a non-GAAP net income per diluted share of $0.31 in the same period last year.2
  

• Operating cash flows were $100.3 million compared to $57.6 million in the same period last year.
  

• Cash, cash equivalents, and marketable securities were $1.93 billion as of July 31, 2019. Unearned revenues were $1.89 billion, a 27.1% increase from the same period last year.

“We delivered strong Q2 results with subscription revenue up 34%, along with solid operating margins and cash flow,” said Robynne Sisco, co-president and chief financial officer, Workday. “Based on our second quarter results, we are raising our fiscal 2020 subscription revenue outlook and now expect subscription revenue of $3.06 to $3.07 billion. We expect our third quarter subscription revenue to be between $783 and $785 million. We continue to prioritize investing in long-term growth initiatives, while delivering solid operating margins and cash flow over time.”

Opinion

From a factor scoring perspective versus the other 199 brands in the brands index, here’s where Workday scores well as of 9/17/19:

• 93% high 3YR sales growth

• 89% low debt to enterprise value

• 92% high 1YR sales growth

• 72% sales surprises last quarter

Cloud stocks have been some of the best performers over the last few years, this will not always be the case and I believe we are now in the “have” versus “have not” phase of cloud & SaaS stocks. With most of these stocks cooling off currently, I think we will see a strong entry point very soon. These are not cheap stocks, thats the biggest concern for me. Their businesses will keep chugging along but the current valuations reflect a decade of strong growth for many names. I’ll try and avoid most of the “have nots”. I believe Workday, though, has a long runway of success ahead as corporations continue to find new ways of outsourcing non-core activities. Workday will keep adding new products/services to keep their lead and the recurring revenue story will be strong. Workday is a fascinating company that exploited a niche that desperately needed some technology and innovation. The total addressable market opportunity is large and Workday is the leader in the field. 800lb gorillas that dominate an important business line for companies are often great investments! WDAY is a buy on big dips like we are seeing now. They will continue to make smart acquisitions and out-innovate the competition in my opinion. Once you implement Workday, you’re probably not going to change vendors. Recurring revenue business models get higher multiples, don’t shoot the messenger.