Workday Tumbles on Disappointing Forecast for Subscription Sales

(Bloomberg) -- Workday Inc., a software maker for enterprise tasks such as human resources, declined 9% in extended trading after its forecast for subscription revenue failed to impress investors.

Sales from subscriptions, a key metric for the cloud-based company, will grow about 21% in the period ending in January, Pleasanton, California-based Workday said Thursday in a statement. Though that was in line with analysts’ estimates, it’s the same growth rate as Workday saw in the third quarter -- not the acceleration some investors were anticipating.  

Co-Chief Executive Officers Aneel Bhusri and Luciano Fernandez are pushing into software that helps companies with core financial applications, planning and procurement -- a market that’s estimated to generate $54 billion market by 2025.

While more than half of the applications in this area are used by companies operating their own data centers, it “could be the next big functional area in software to see a rapid shift to the cloud,” Anurag Rana, a Bloomberg Intelligence analyst, said in a report last week. That transition will give Workday an opportunity for growth with its cloud-based products, he said.

But the forecast suggests Workday isn’t gaining as much business in this new area as investors expected. 

Fiscal third-quarter sales increased 20% to $1.33 billion, the company said in the statement. Analysts projected $1.31 billion. Subscription revenue was $1.17 billion, again just topping analysts’ average estimate of $1.16 billion. Profit, excluding some items, was $1.10 a share in the period ended Oct. 31. Analysts projected 87 cents. 

The stock, which jumped 46% in 2020, has gained 25% this year, closing at $299.09 Thursday, just off a record high reached on Wednesday.

Separately, the company announced it had agreed to buy Ohio-based VNDLY, a workforce and vendor management software company, for about $510 million, primarily in cash. And Workday said it promoted Doug Robinson to co-president, effective immediately, and Barbara Larson to chief financial officer, starting Feb. 1.

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