Workday’s stock surged by 12% on Friday, following the company’s fiscal second-quarter results that surpassed analysts’ expectations and the announcement of an increased margin target for 2027. The finance and human resources software provider reported earnings per share of $1.75, beating the expected $1.65, and revenue of $2.085 billion, slightly above the anticipated $2.071 billion. This robust performance is attributed to a 17% year-over-year revenue growth for the quarter ending July 31, with subscription revenue also increasing by 17%. Net income for the quarter rose to $132 million, or 49 cents per share, from $79 million, or 30 cents per share, a year earlier.
In its updated guidance, Workday projected an adjusted operating margin of 25.25% for the 2025 fiscal year, up from the previous forecast of 25% provided in May. The company is aiming for an adjusted operating margin of 30% for the 2026 and 2027 fiscal years, along with an annual subscription revenue growth of 15%. This revised target represents a significant increase from earlier projections and has been viewed positively by analysts.
Zane Rowe, Workday’s finance chief, emphasized the company’s focus on scaling processes and balancing product development with go-to-market investments. Deutsche Bank analysts responded by raising their 12-month price target for Workday’s stock to $275 from $265, maintaining a hold rating. They highlighted the increased margin target as a significant upside surprise, noting it exceeded most expectations. Similarly, analysts from Citi, Evercore ISI, and Piper Sandler also revised their price targets upward following the report.
Despite the positive financial outlook, Workday faces challenges. Rowe noted a cautious approach among organizations in finalizing contracts and a slowdown in headcount growth among existing customers. This reflects broader economic uncertainties affecting the software industry. However, Federal Reserve Chair Jerome Powell’s recent remarks suggesting potential rate cuts could benefit cloud software companies like Workday. The WisdomTree Cloud Computing Fund, which includes Workday, saw a 2% increase on Friday, while the S&P 500 index gained 1%.
CEO Carl Eschenbach cautioned that current IT spending conditions might persist as the new norm. Despite this, he expressed confidence in Workday’s resilience and product strength, preparing the company for ongoing market challenges.
