Human resources management software company Workday Inc. reported better-than-expected second-quarter results today, delivering earnings and revenue above expectations and raising its guidance for the full year.
The results barely moved the needle, though, as the company’s stock remained flat after-hours, having closed up about 1.5% prior to today’s report.
The company delivered earnings before certain costs such as stock compensation of $2.75 per share, easily beating Wall Street’s projected target of $2.61 per share. The revenue beat was less impressive, but with sales coming to $2.65 billion, it still beat the analyst consensus estimate of $2.64 billion. The company ended the quarter with net income of $632 million, up from just $228 million in the same period one year earlier.
Workday said its 12-month subscription revenue backlog ended the quarter at $9.03 billion, up 14.2% from a year earlier. Meanwhile, its total subscription revenue backlog rose 8%, to $27.4 billion.
Co-founder and Chief Executive Aneel Bhusri (pictured) said the results are evidence that the company’s bet on artificial intelligence agents is beginning to pay off, despite concerns that the rise of AI models could disrupt its business. “We have a strong Q2, with AI driving more than 25% of our new ACV and more than 5,500 customers now using at least one of our organic agents,” he said. “Because of Workday’s deterministic rails, customers can trust our agents with the work that matters, and you’re seeing that in the numbers.”
Workday sells cloud-based software for human resources management, finance, payroll and spending and planning tasks. It serves more than 11,500 customers globally, including Netflix Inc., John Hopkins University and Thomson Reuters. But in recent months, investors have become concerned that the rise of generative AI technology and especially AI coding bots could threaten to take business away from software players like Workday.
Such fears were dismissed as alarmist nonsense by Rebecca Wettemann, CEO of the industry analyst firm Valoir. “The idea of someone vibe-coding an application with the level of complexity, compliance and data privacy requirements as Workday is laughable,” she said. “Workday’s competition isn’t the LLMs, it’s the upstarts like HiBob and Darwinbox from the HCM perspective, Oracle from the finance perspective and platform players like ServiceNow and Salesforce from the AI perspective.”
Despite this, Wettemann said Workday’s AI agents have actually been driving application sales, which is “the opposite of the SaaSpocalypse theme,” Wettemann said.
According to Wettemann, Workday’s biggest challenge is that it has a reverse AI moat, and nobody is going to pay for its AI agents without deploying the full Workday finance or HCM platform first of all. This is why the company’s pipeline is dependent on its winning new core deployments, then proving AI adoption on top of them. “The AI pitch is strong enough that it’s pulling some customers into a platform switch,” she said.
Holger Mueller of Constellation Research said Workday’s AI momentum benefits from having key cloud partners in the shape of Amazon Web Services Inc. and Google Cloud, because AI still operates best in the public cloud compared to other environments. “With more than 5,500 customers using Workday’s in-house AI agents, that suggests it has cracked the code in terms of getting out-of-the-box agents into the hands of customers and getting them to use them,” the analyst said. “It’s an important KPI and the market will take notice amid all of the noise about SaaS versus AI.”
Equally important to Workday’s agentic proposition is the Workday Developer Agent, Mueller said. “This is what enables builders to create the agentic automations that are critical for enterprises that want to own their automation destiny,” he explained.
Chief Financial Officer Zane Rowe said today’s results were a reflection of the continued momentum the company has seen this year, with “AI emerging as a strategic driver of customer expansion.”
For the current quarter, Workday is projecting subscription revenue of $2.515 billion, just ahead of the Street’s forecast. For the full year, it upped its subscription revenue guidance from a range of $9.925 billion to $9.950 billion to between $9.94 billion and $9.95 billion.
Earlier this month, Workday’s stock jumped more than 18% following a report that the private equity firm Silver Lake was holding talks with its management about a possible buyout. But although analysts believed that the proposed sales would be advantageous to both parties, a deal failed to materialize. In the days that followed, Workday’s stock declined again after some financial analysts downgraded it, saying that their earlier projections for the company may have been too optimistic.
In the year to date, Workday’s stock is down 9.8%, trailing the broader S&P 500 Index, which has gained 13% over the same period.