Workday, a major player in human resources and finance software, recently released its quarterly forecast, which fell short of Wall Street expectations. As a result, the company's stock price dropped by as much as 11% in extended trading.
The forecast for the fiscal fourth quarter indicated an adjusted operating margin of 25% on projected subscription revenue of $2.03 billion. However, analysts had expected a slightly higher margin of 25.5% and revenue of $2.04 billion, highlighting a disconnect between the company's outlook and market expectations.
In its fiscal third quarter, Workday reported strong performance metrics. The company exceeded expectations with earnings per share of $1.89, surpassing the expected $1.76. Revenue reached $2.16 billion, exceeding the $2.13 billion forecast. Workday's net income for the quarter was reported at $193 million, or 72 cents per share, a notable increase from the previous year's $114 million, or 43 cents per share. The adjusted operating margin for this quarter stood at 26.3%, slightly above the anticipated 25.4%.
Despite the positive performance, Workday's finance chief, Zane Rowe, acknowledged that the company is facing increased scrutiny in various regions, which could pose challenges as it seeks to expand. However, CEO Carl Eschenbach highlighted the potential for growth in the U.S. government sector, noting that the majority of human capital management (HCM) and enterprise resource planning (ERP) solutions are still on-premises, presenting an opportunity for cloud-based solutions.
Workday recently acquired Evisort, a startup specializing in contract lifecycle management software, as part of its strategy to enhance its product offerings. The company is also set to introduce artificial intelligence agents designed to improve efficiency and streamline processes.
Looking ahead, Workday aims to achieve $8.8 billion in subscription revenue for fiscal year 2026, representing a 14% growth rate. Despite the challenges it faces, the company remains committed to expanding its market presence and capitalizing on emerging opportunities.