Workday (WDAY) Remains on Track for Growth and Delivers Strong Q2 Results. The Margin is Expected to Expand Again Until 2026/2027.
Workday (WDAY) is a leading provider of cloud software for enterprise management, with a strong position in over 60% of the Fortune 500 and many smaller companies. In total, it has over 10,500 customers in over 175 countries. The company offers integrated solutions for human capital management (HCM), financial management, expense management and analytics. The business model is based on a subscription-based Software-as-a-Service (SaaS) approach, where customers pay for access to the software. The company now has more than 70 million users under contract...
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'post_content' => 'Workday (WDAY) is a leading provider of cloud software for enterprise management, with a strong position in over 60% of the Fortune 500 and many smaller companies. In total, it has over 10,500 customers in over 175 countries. The company offers integrated solutions for human capital management (HCM), financial management, expense management and analytics. The business model is based on a subscription-based Software-as-a-Service (SaaS) approach, where customers pay for access to the software. The company now has more than 70 million users under contract who carry out more than 800 billion transactions on the Workday platform every year.
Growth potential in addressable markets with a volume of $142 billion
The areas of human capital management (HCM) and financial management and more (FINS+) offer enormous growth potential. In HCM, which is estimated at $58 billion, automation and AI are driving demand in the workforce management, talent management, payroll, workforce planning and employee experience segments. The increasing complexity of financial management and the need for integrated, cloud-based solutions are driving growth in the FINS+ segment, which is estimated at $84 billion. Important segments are Financial Management, Financial Planning, Spend Management and Analytics. Workday Extend and digitalization in the education sector offer additional growth opportunities.
Global expansion and strategic partnerships
Workday is continuously expanding its offering through AI innovation, particularly generative AI, which is seen as a business imperative. New partnerships, such as those with Salesforce and Equifax, further strengthen Workday\'s position. The company is investing in global expansions, particularly in regions such as Asia Pacific (APAC) and Europe, and has seen significant success in the healthcare and education sectors.
Strong Q2 results and optimistic guidance
On Thursday (August 22), the company delivered its Q2 results. Workday reported 17% growth in subscription revenue and 16% growth in 12-month backlog. EPS of $1.75 exceeded expectations by $0.10. The operating margin was 25%. Workday expects annual subscription revenue growth of approximately 15% in 2026 and 2027, while planning to expand operating margin to 30% over the same period. Analysts at Wells Fargo raised the price target from $260 to $300 and reiterated the \'Overweight\' rating. The upside potential is around 30%. The analysts believe the target price increase is justified given Workday\'s differentiated platform, strong customer relationships and significant margin expansion. Evercore ISI raised the price target from $290 to $310.
Workday (ISIN US98138H1014): Workday is strategically well positioned to benefit from increasing demands for digitization, automation and data-driven decision making. The company has the potential to further strengthen its market position in these growing segments, particularly through the use of AI and the expansion of its cloud-based offerings. The valuation recently came down to a forward P/S 2024 ratio of almost 7.4. The stock is now heading for the MA 200 again and should be able to push back above it in the medium term.
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