Will Workday and Salesforce Team Up to Crush Oracle?

Workday (NYSE: WDAY  ) will release its quarterly report on Monday, and the cloud-based HR company has seen its shares soar since its initial public offering just last year. But the interesting question many investors have is whether a strategic partnership with salesforce.com (NYSE: CRM  ) is motivated solely by the desire to boost overall profits or with the hope that by succeeding, Workday co-founders Aneel Bhusri and David Duffield will get their just desserts over Oracle (NYSE: ORCL  ) after its hostile takeover of PeopleSoft in 2005.

Workday is trying to be the cloud-computing industry's answer to human resources and financial management software, helping companies take care of their workforce with time-tracking tools, employee-expense management, and other useful services. The company has done a good job of bringing in some high-profile Fortune 500 customers, and with its emphasis on HR, it's as much a competitor to payroll and HR consulting specialist Automatic Data Processing (NASDAQ: ADP  ) as it is to Oracle. But Oracle and other cloud players have nevertheless sought to make human resources software a big part of their offerings, making Workday's collaboration with Salesforce.com that much more important. Let's take an early look at what's been happening with Workday over the past quarter and what we're likely to see in its report.

Stats on Workday

Analyst EPS Estimate

($0.17)

Year-Ago EPS

($0.39)

Revenue Estimate

$117.68 million

Change From Year-Ago Revenue

62%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Can Workday keep growing this quarter?
Analysts have gotten more optimistic about Workday earnings in recent months, trimming their October-quarter and full-year estimates for the current and coming fiscal years by about 10%. The stock has largely stayed flat, though, rising just 1% since late August.

Workday's pace of growth stayed strong during the July quarter, with the company announcing sales growth of more than 70%, which helped the company post a loss that was a nickel per share less than investors had expected. Favorable guidance for the October quarter also heartened shareholders, who were especially pleased with the 92% rise in subscriptions over the year-ago quarter.

But arguably the most interesting news of the quarter for Workday was its decision to create a deeper partnership with Salesforce and integrate their entire product lines, essentially giving both companies access to each other's key advantages in cloud computing. By doing so, Workday and Salesforce hope to become a one-stop shop for enterprise customers seeking comprehensive cloud-based solutions to all of their management needs, avoiding the need to use multiple providers to get separate services. Oracle's recent struggles show that Workday's strategy with Salesforce is more likely than ever to succeed, given Oracle's need to focus on building up its core business and its much higher prices.

The concern facing Workday investors is how long the company has until it will have to justify its high valuation with actual profits. As long as its growth prospects hold up, Workday can convince high-growth investors that the future will bring profitability in due course. But if revenue starts to slow, then Workday could see its shares get hammered hard as investors look to the relative security of a slower-growth, lower-multiple stock like Oracle.

In the Workday earnings report, look closely to see where the company's strongest areas of growth are, as well as early signs of how the collaboration with Salesforce is going. With the stock having backed off its recent highs somewhat, Workday could be setting itself up for a big move in either direction depending on how its results fare this quarter.

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  • Report this Comment On November 25, 2013, at 2:22 PM, Decoy0527 wrote:

    One company with no profits hooks up with another company with no profits. Sounds like a marriage made in heaven. Is the Workday CEO as crazy as Benioff? That would be a twofer.

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