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Why Workday Stock Popped Today

By Evan Niu, CFA – May 28, 2020 at 4:43PM

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The cloud-based HR platform announced first-quarter results and some new partnerships.

What happened

Shares of Workday (WDAY 2.55%) have popped today, closing out the session with gains of 7% after the company reported fiscal first-quarter earnings yesterday. The results were mixed relative to expectations, but investors also cheered two new partnerships.

So what

Revenue in the first quarter increased 23% to $1.02 billion, slightly ahead of the $1 billion in sales that Wall Street was looking for. That translated into adjusted net income of $108.8 million, or $0.44 per share. Analysts had been modeling for $0.49 per share in adjusted profits. Subscription revenue was $882 million, and the cloud-based human resources platform now has a subscription revenue backlog of $8.2 billion.

Exterior shot of Workday headquarters

Image source: Workday.

"The cloud is playing a critical role in today's climate, with organizations leaning on Workday to pivot -- whether it's helping employees learn virtually, closing books remotely, or scenario planning to determine what path to take," CEO Aneel Bhusri said in a statement. "In many of these situations, our customers are running essential businesses, which we are incredibly grateful for."

Now what

Workday announced separate strategic partnerships with two enterprise software behemoths: Microsoft and Salesforce. The deal with Microsoft involves enterprise planning on the company's Azure cloud, while the new agreement with Salesforce includes deeper integrations designed to help mutual customers safely return to normal working conditions.

While the COVID-19 pandemic continues to drive demand for many cloud-based enterprise services, ongoing macroeconomic uncertainties remain, so Workday is reducing its subscription revenue guidance accordingly. Subscription revenue in the second quarter is expected to be in the range of $913 million to $915 million, with subscription revenue for the full fiscal year forecast at $3.67 billion to $3.69 billion.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Salesforce.com. The Motley Fool owns shares of and recommends Microsoft, Salesforce.com, and Workday and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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