Workday, the finance and human resources software maker, experienced a significant boost in its shares, rising by 12% on Friday. This surge came after the company announced its fiscal second-quarter results, which surpassed analysts’ expectations across the board. The key figures included an adjusted earnings per share of $1.75, exceeding the expected $1.65, and a revenue of $2.085 billion compared to the estimated $2.071 billion. The company reported a 17% year-over-year increase in revenue, with subscription revenue also growing by 17%.
In addition to its strong quarterly performance, Workday provided an optimistic outlook for the future. The company announced plans to widen its adjusted operating margin through 2027, aiming for a 25.25% margin in the 2025 fiscal year. This target represents an increase from the previously forecasted 25%. Furthermore, Workday’s finance chief, Zane Rowe, anticipates the adjusted operating margin to expand to 30% in the 2026 and 2027 fiscal years, coupled with an annual subscription revenue growth of 15%.
Following Workday’s impressive results and promising projections, analysts from various firms revised their price targets for the company’s stock. Deutsche Bank raised their 12-month price target to $275 from $265, with a hold rating. Analysts from Citi, Evercore ISI, and Piper Sandler also adjusted their price targets upwards. The analysts highlighted the 30% operating margin target as a significant surprise, especially considering the timeline and magnitude of the commitment.
Despite its success, Workday faces challenges in a market where organizations are cautious about signing contracts, leading to slower headcount growth among existing customers. The company’s CEO, Carl Eschenbach, acknowledged the difficult environment for IT spending and sales, suggesting that it may be the new norm going forward. However, the recent comments from Federal Reserve Chair Jerome Powell about adjusting policies to support the economy could benefit companies like Workday, particularly in the cloud software sector. As investors reconsider their strategies amid economic uncertainties, Workday remains focused on its growth initiatives.
In response to Workday’s positive performance, investors showed confidence in the company’s future prospects. The WisdomTree Cloud Computing Fund, an ETF including Workday, ended the day with a 2% increase in Friday’s trading session. This surge outpaced the broader market, with the S&P 500 index gaining 1%. While market conditions may continue to pose challenges, Workday’s strong quarter results and strategic outlook have positioned the company for long-term success in the evolving software industry.