Workday (WDAY 0.46%) has arguably been the poster child of the software-as-a-service (SaaS) sell-off. A leader in financial and human capital management software, the company is at the intersection of multiple bearish arguments. Not only does it operate a software platform that has the potential to be disrupted by artificial intelligence (why does an organization need Workday if an AI agent can handle expenses and payroll through an AI model API?), but its seat-based software is also directly tied to enterprise hiring. That's a triple whammy.
Given the headwinds in the SaaS sector, Workday has been one of the hardest-hit stocks, with its shares more than halved over the past year. However, the stock popped more than 5% last Friday (May 22) after the company reported another solid quarter of revenue growth.
Let's take a closer look at Workday's results and prospects to see if the stock can continue to rally.
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Solid growth continues at Workday
Despite a tough hiring environment, Workday continues to produce solid growth, led by AI product adoption. In the first quarter, its new annual account value (AAV) from its agentic AI products surged 200% year over year, and it's nearing $500 million in annual recurring revenue from those offerings. The company's Flex Credit pricing model is starting to gain traction, helping support AI adoption among its customers and simplifying monetization.
This helped Workday grow its overall Q1 revenue by 13.5% year over year to $2.54 billion, with subscription revenue rising by more than 14% to $2.35 billion. Adjusted earnings per share (EPS) climbed 19% to $2.66. That was ahead of consensus estimates for revenue of $2.52 billion and EPS of $2.51, as compiled by LSEG. The company's 12-month subscription revenue backlog jumped by 15.5% to $8.81 billion, while its total subscription revenue backlog grew by nearly 11% to $27.3 billion.
Looking ahead, Workday management forecasted Q2 subscription revenue to grow by 13% to about $2.455 billion, which was just ahead of the $2.45 billion consensus, as compiled by StreetAccount. It maintained its full-year subscription revenue outlook of between $9.925 billion and $9.95 billion, representing 12% to 13% growth. It now expects operating margins of 30.5%, which was above its prior 30% forecast.
NASDAQ: WDAY
Key Data Points
Can Workday stock continue to rally?
If AI is going to disrupt software, it's playing out in super-slow motion. While SaaS companies have generally not been able to accelerate revenue growth, it has held pretty steady. This has also been true of Workday, which, given its ties to hiring, should be one of the SaaS stocks more vulnerable to a slowdown.
That stock was down a lot going into the report, and even with the jump in its share price, it still trades at a forward price-to-sales (P/S) ratio of only 3.1 and a forward price-to-earnings (P/E) ratio of 12.3, based on analysts' fiscal 2026 estimates. With the bottom possibly in and Workday leaning into agentic AI to drive growth, the stock looks like a solid rebound candidate.
