Workday Inc. (WDAY) reported impressive first-quarter fiscal 2025 results, outperforming both the bottom and top line expectations set by Zacks Consensus Estimate.
The company’s revenue growth, attributed to significant customer acquisitions across diverse sectors such as education, finance, and healthcare, contributed to the positive financial results. Moreover, strategic expansions and successful contract renewals within the existing clientele bolstered the company’s revenue performance. Workday’s commitment to innovation, integration of AI, and international growth strategies have notably contributed to its success.
Net Income
On a GAAP basis, Workday reported a net income of $107 million or 40 cents per share, in contrast to break-even results in the previous year’s quarter. Despite increased operating expenses, a considerable boost in revenues led to a substantial improvement in the bottom line.
Non-GAAP earnings soared to $1.74 per share from $1.33 per share in the corresponding quarter of the previous year, surpassing the Zacks Consensus Estimate by 17 cents.
Revenue Performance
The company’s net sales for the quarter amounted to $1.99 billion, marking a substantial increase from $1.68 billion in the same period last year. The growth was primarily fueled by the rising demand for Workday’s Human Capital Management and financial management solutions, exceeding the Zacks Consensus Estimate by $17 million.
Workday’s robust revenue growth not only underscores the breadth and strength of its product portfolio but also indicates a series of new customer acquisitions, along with essential expansions and renewals within its current customer base.
Subscription services revenues stood at $1.82 billion, up from $1.53 billion compared to the previous year’s quarter, surpassing the estimated sales. The 12-month subscription revenue backlog closed at $6.6 billion, showing a year-over-year increase of 17.9%, driven by improved contract renewals. The total subscription revenue backlog grew by 24.2% to $20.68 billion.
Professional services revenues reached $175 million, exceeding the estimated $163 million compared to the previous-year quarter.
Operational Highlights
During the quarter, Workday recorded an operating income of $64 million, a notable turnaround from an operating loss of $20 million in the same quarter of the previous year. Non-GAAP operating income also surged to $515 million, up from $396 million, with corresponding margins of 25.9% and 23.5%.
Financial Position
In the first quarter of fiscal 2025, the company generated $372 million in cash from operating activities, an increase from $277 million in the corresponding quarter of the previous year. Workday executed share buybacks worth $134 million during the quarter at $267.09 per share.
As of Apr 30, 2024, Workday held cash, cash equivalents, and marketable securities totaling $7.18 billion, offset by long-term debt of $2.98 billion.
Future Outlook
For the fiscal year 2025, Workday adjusted its Subscription revenue guidance to range between $7.7 billion and $7.725 billion, indicating 17% year-over-year growth. Professional services revenues are estimated to be between $650 million and $660 million. The company expects a non-GAAP operating margin of 25% with estimated capital expenditure around $330 million.
Anticipating the second quarter of fiscal 2025, Workday forecasts Subscription services revenues of $1.895 billion, while Professional services revenues are expected to reach $175 million. The non-GAAP operating margin for the quarter is approximated to be 24.5%.
Analyst Picks
Workday currently holds a Zacks Rank #3 (Hold).
Arista Networks, Inc. (ANET) with a Zacks Rank #1 is likely to benefit from strong momentum and diversification across its core verticals and product lines. The company boasts a software-centric, data-driven approach aimed at helping clients fortify their cloud infrastructure and enhance their cloud experience. Arista has an anticipated long-term earnings growth of 15.7% and has consistently surpassed earnings expectations over the past four quarters.
Ubiquiti Inc. (UI) holds a Zacks Rank #2 (Buy) and is a notable contender in the industry, offering a wide array of networking products at competitive prices to service providers and enterprises. With its efficient network communication platform tailored to meet customer requirements, Ubiquiti remains focused on reducing operational costs and providing rapid product support, thereby leveraging the Ubiquiti Community’s strengths.
NVIDIA Corporation (NVDA) is another noteworthy choice in the sector with a Zacks Rank #1. Recognized globally for its visual computing technologies and GPU innovation, NVIDIA has evolved from PC graphics to AI solutions, supporting high-performance computing, gaming, and virtual reality. NVIDIA holds a projected long-term earnings growth of 30.9% and has consistently outperformed earnings estimates in the trailing four quarters.
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