By Workday Inc. failed to impress investors on Wall Street with its long-term outlook, causing a decline in the software company’s shares on Thursday.
Analysts Perceive Conservatism in Workday’s New Targets
Although the new targets released by Workday on Wednesday afternoon fell short of expectations, many analysts still observed a sense of conservatism. The company now predicts an annual subscription revenue growth of 17% to 19% until fiscal 2027, with an adjusted operating margin exceeding 25%. Previously, Workday’s management had set their sights on achieving an annual subscription revenue growth of over 20%.
Stock Slump for Workday
In response to the news, Workday experienced a 10% decline in its share price during Thursday morning trading.
Analyst Believes Workday’s Targets Are Attainable
Bernstein analyst Mark Moerdler expressed confidence in Workday’s ability to meet its targets. He stated, “We believe the company is being conservative here and effectively acknowledged that they do not anticipate an improvement in the macro environment.” Moerdler also emphasized the possibility of Workday achieving the low-ball target of an operating margin exceeding 25% by next year.
The stock was given an outperform rating with a target price of $284 by Moerdler.
Industry experts remain divided on the future prospects of Workday Inc. despite the recent setbacks disclosed in the company’s latest targets. While some analysts express disappointment over the dampened growth and margin expansion, others maintain a positive outlook, believing that the new management team is making strategic moves and that the targets may prove to be conservative.
Derrick Wood’s Perspective
TD Cowen’s Derrick Wood acknowledges the disappointment surrounding the adjusted growth and margin expansion figures. However, he remains optimistic about Workday’s potential, stating that the current situation presents an opportunity for the company to outperform expectations. Despite reducing his target price from $270 to $260, Wood maintains an outperform rating for Workday.
Matthew Pfau’s Optimism
William Blair’s Matthew Pfau shares Wood’s positive sentiment, regarding the recent pullback as a potential buying opportunity. Pfau believes that while this adjustment may exert temporary pressure on the stock, it positions Workday favorably to surpass expectations in the medium term. He reiterates his outperform call and expresses confidence in the investment thesis for Workday. Moreover, Pfau views any potential sell-off as a chance for investors who missed out earlier in the year.
Varied Sentiment from John DiFucci
Guggenheim’s John DiFucci offers a contrasting perspective. His outlook is more pessimistic compared to Cowen and Blair. Unfortunately, no further details are provided on DiFucci’s position.
Overall, Workday faces some challenges ahead; nonetheless, there are experts who believe in its potential for future success. While some see the current situation as a reason to approach cautiously, others view it as an opportune moment to invest. As the market shifts, investors will closely monitor Workday’s performance to determine its true trajectory.
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