Workday (WDAY.US) Q2 performance was mixed; Q3 subscription backlog order guidelines fell short of expectations, testing rebound momentum

The Zhitong Finance App learned that the sales guidelines announced by office management software manufacturer Workday (WDAY.US) fell short of analysts' expectations, curbing Wall Street's recent upward momentum due to renewed optimism about the software industry. The stock fell more than 7% after the market on Thursday. As of press time, the decline had narrowed to less than 1%.

According to financial reports, Workday's revenue for the second fiscal quarter increased by about 13% year over year to US$2.65 billion, slightly better than analysts' average expectations of US$2.63 billion; adjusted earnings per share were US$2.75, which fell short of analysts' average expectations of US$2.61.

Subscription revenue for the second fiscal quarter was $2.47 billion, up 14% year over year. The subscription revenue backlog for the past 12 months was $9.034 billion, up 14.2% from the same period last year. The total subscription revenue backlog was $27.403 billion, up 8.0% year over year.

However, Workday expects that at the end of the third fiscal quarter ending July 31, its total subscription revenue backlog will increase 8% year over year to US$27.4 billion. It falls short of analysts' average expectations of $28.6 billion; subscription revenue for the third fiscal quarter is expected to be $2.52 billion, in line with analysts' average expectations.

Workday is part of a group of application software companies that continue to be plagued by investors' concerns about artificial intelligence (AI) disruption. However, as sales remained stable, investors' concerns that emerging AI companies and tools might steal business from traditional software vendors began to ease in the past month. The stock is up 31% over the past month, but is still down about 10% since this year.

Workday mainly develops software for office tasks, including payroll and human resources management, and has been incorporating artificial intelligence into its products. The company also recently made changes to its management. In February of this year, the company announced that former CEO and co-founder Aneel Bhusri would return to the CEO position. Aneel Bhusri previously stepped down in 2024.

One factor driving investors to become optimistic about software stocks was an earlier report that private equity firm Silver Lake is in talks to acquire Workday. The market believes that this potential deal proves the long-term value of such software vendors. Barclays analyst Raimo Lenschow wrote, “The SaaS sector has seen a recovery in recent weeks. Workday is largely in line with expected results and guidance, and is unlikely to be another catalyst.”

Aneel Bhusri, Co-Founder, CEO and Chairman of Workday, said, “We had strong results in the second quarter. AI contributed more than 25% of the additional annual contract value, and over 5,500 customers have now used at least one of our organic traffic agents. Thanks to Workday's deterministic service system, customers can confidently hand over important work to our agents, and this has been reflected in the data.”

Workday Chief Financial Officer Zane Rowe said, “Our second-quarter results reflect the continued strong growth momentum of our platform, and AI has become a strategic driver for customer expansion. We expect subscription revenue for FY2027 to reach $9.94 billion to $9.95 billion, an increase of 13% year over year, while raising the 2027 non-GAAP operating margin forecast to 31.0%. We will continue to prioritize investment in our smart AI roadmap and platform development opportunities, and improve operational efficiency while growing on a large scale.”

Additionally, Workday announced that its board of directors has authorized an indefinite repurchase of up to $4 billion of issued Class A common shares. Workday announced a new partnership with Cloud Services (AWS) under Amazon (AMZN.US). Workday Data Cloud will integrate with AWS to provide bi-directional, zero-copy access between AWS data and AI services and Workday's human resources and financial data. Workday has also expanded its strategic partnership with Google Cloud, a subsidiary of Google (GOOGL.US), directly introducing Workday agents to Gemini Enterprise and creating a single, trustworthy foundation that enables agents from Workday, Google Cloud, and third parties to work together to handle real human resources and financial workflows.