What happened

Shares of Workday (WDAY 0.53%) gained 13.9% across the first six months of the year, according to data from S&P Global Market Intelligence. The enterprise software stock managed to close out the first half of 2020 with double-digit gains thanks to two solid quarterly reports as companies increasingly moved business processes to the cloud in response to the coronavirus pandemic.  

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Workday stock plummeted in March as sell-offs rocked the broader market and pointed to a weaker growth environment. But shares recovered along with the market and got a boost from the strong first-quarter results that the company published in May and signs of long-term tailwinds emerging despite challenges facing the software company in the near term.  

A person using a laptop.

Image source: Getty Images.

So what

Workday's Q4 report delivered sales and earnings that topped the market's expectations. The company posted adjusted per-share earnings of $0.50 on sales of $976.3 million, representing a 22% year-over-year earnings increase and a 23.8% increase for sales. The average analyst estimate had targeted EPS of $0.40 on revenue of $964.54 million.

The company's Q1 results were then published in May, with earnings falling short of the market's target and sales narrowly topping estimates. Sales climbed 23.4% in the quarter to reach $1.02 billion, and adjusted earnings came in at $0.44 per share. Subscription revenue for the period reached $882 million, up 25.8% year over year. The average analyst estimate had called for EPS of $0.49 on revenue of $1 billion.

While Workday's first-quarter earnings fell significantly short of the market's target, this was largely the result of a $79 million one-time bonus to its employees. Workday lowered its full-year subscription revenue target due to coronavirus-related headwinds, but the company hiked its gross margin estimate from 14.5% to 16% and paired the Q1 report and guidance revisions with news that it had signed new partnerships with Salesforce.com and Microsoft

Now what

Workday stock has continued to gain ground early in July's trading, with shares up roughly 1.8% in the month so far.

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With the pandemic having created an economic climate in which many businesses are pulling back on spending, Workday faces a more challenging path to near-term growth in some respects. But the pandemic has also accelerated the shift of many business processes to the digital space, and this movement is likely to continue over the long term. 

Workday expects second-quarter subscription revenue to be between $913 million and $914 million, good for growth of 20.7% at the midpoint of the target. Full-year subscription revenue is projected to be between $3.67 billion and $3.69 billion, representing growth of 18.7% at the midpoint. 

Workday is valued at roughly 84.5 times this year's expected earnings and 10.7 times expected sales.