NASDAQ: WDAY
COMPANY DESCRIPTION
Founded
in – 2005 | Current Market Cap – 28.15 Billion USD
Workday,
Inc. provides enterprise cloud applications for finance and human resources
worldwide. It provides applications for customers to manage critical business
functions to optimize their financial and human capital resources. The company
offers Workday Financial Management application that provides functions of
general ledger, accounting, accounts payable and receivable, cash and asset
management, employee expense and revenue management, projects, procurement,
inventory, and grants management. It also provides Workday Human Capital
Management application, which includes human resources management, such as
workforce lifecycle and organization management, compensation, absence, and
employee benefits administration; and global talent management comprising goal
and performance management, succession planning, and career and development
planning. Workday, Inc. headquartered in Pleasanton, California.
RECOMMENDATION
We rate Workday Inc. a buy at USD 120
for a target of USD 142 in two months.
Below are the basic reasons to
recommend this stock as a Buy.
·
Workday’s revenue growth continues to be driven
by high demand for its HCM and financial management solutions. The company’s
cloud-based business model and expanding product portfolio have been the
primary growth drivers. According to Gartner, the global Software-as-a-Service
(SaaS) market is expected to increase at a CAGR of 18.4% over 2016–2020-time frame.
Based on its expanding product portfolio, we believe that Workday is well
positioned to gain from this strong growth prospect going forward.
·
Workday’s HCM suite of applications demonstrates
strong growth momentum driven by the transition of organizations to the cloud.
Per management, the company’s application has been selected for core HR by more
than 30% of Fortune 500 companies. We, therefore, see much room for expansion
here. The company’s growing clout in the HCM market is evident from market research
firm Gartner’s August 2017 “Magic Quadrant for Cloud HCM Suites for Midmarket
and Large Enterprises” report where it put Workday in the “Leaders” quadrant.
The company was ranked #4 on the list of the 100 Best Workplaces for Millennial
by Fortune and Great Place to Work Institute. Additionally, the company was
ranked #6 on the list of the Best Large Workplaces in Europe by Great Place to
Work Institute. Workday has more than 2,200 customers.
·
During the second quarter, the company added Eli
Lilly and Company, Bridgestone Americas, Siemens Healthineers and DBS Bank as
its new HCM customers. The company’s clientele includes enterprises like
Citigroup Management Corporation, Nordstrom, Qualcomm and Humana. Per research
firm MarketsandMarkets, the HCM market size is anticipated to grow from $14.5
billion in 2017 to $22.5 billion by 2022 at a CAGR of 9.2%.
·
The company’s dominance in the financial
management sector is also increasing, which is evident from Gartner’s June 2017
“Magic Quadrant for Cloud Core Financial Management Suites for Midsize, Large,
and Global Enterprises” report where Workday was again placed in the “Leaders”
quadrant. Customers of its financial management application include the likes
of Ohio Health Corporation, The Children’s Hospital of Philadelphia, Giant
Tiger Stores and Carlyle. Moreover, Workday Planning application is also doing
well with more than 170 customers including Qualcomm and Bank of America.
·
Workday’s diversified product portfolio
continues to yield a steady flow of customers. We believe that the company’s
high customer satisfaction rate bodes well for its long-term business model. In
the fourth-quarter, the company achieved industry-leading 98% customer
satisfaction rating, which even surpassed its target of 95%. It plans to
achieve similar levels every year.
·
Workday is also gaining traction in the
international market, which is evident from approximately 28% year-over-year
increase in revenues in the last reported quarter. Reportedly, Munich
Germany-based manufacturing giant, Siemens replaced its current HR system with
Workday HCM. Additionally, in Europe and Asia Pacific’s Japan region, the
company added Shell and Johnson Electric, respectively as customers in recent
times.
·
Workday is a cash-rich company with a strong
balance sheet. The company generated approximately $465.7 million cash from
operating activities in fiscal 2018, which increased from $11.2 million in
2013. Workday exited fiscal 2018 with cash and cash equivalents of $1.134
billion, compared with $539.9 million in fiscal 2017. Workday has no long-term
debt. The strong cash balance can be used for pursuing strategic acquisitions,
investment in growth initiatives and distribution to shareholders.
EARNINGS
Workday Inc. delivered
second-quarter fiscal 2019 non-GAAP earnings of 31 cents per share, which beat
the Consensus Estimate of 26 cents. The figure also improved 29.2% year over
year.
Strong growth can primarily be
attributed to 27.9% jump in revenues, which totaled $671.7 million. The figure
surpassed the Consensus Estimate for revenues of $663 million. The robust
top-line performance was driven by solid growth in subscription and
professional revenues.
Subscription revenues (84% of total
revenues) surged 30% year over year to $656.7 million, on the back of expanding
customer base and robust net new ACV growth. The figure surpassed the guidance
of $557-$559 million.
Professional services revenues (16%
of total revenues) grew 17% from the year-ago quarter to $106 million and were
better than the guidance of $104 million.
Revenues outside the United States
climbed 48% to $156 million, representing a record 23% of total revenues in the
reported quarter.
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