Piper Sandler has maintained an Overweight rating on Workday (NASDAQ: NASDAQ:WDAY) shares, with a new price target of $285, up from the previous $262.
The firm's stance comes after evaluating Workday's second-quarter performance, where subscription revenue growth slowed to 17% year-over-year, a decrease from the 19% growth seen in the previous quarter.
The deceleration was attributed to increased macroeconomic challenges that had emerged, such as heightened deal scrutiny and a slowdown in headcount growth.
Despite these headwinds, analysts found positives in Workday's performance, including successful full suite deals, partner engagement, international market expansion, and advancements in artificial intelligence.
Workday's management has also revised its medium-term financial targets, signaling a stronger focus on profit margins. The company now aims for non-GAAP operating margins of 30% by fiscal year 2027, an increase from the previous target of over 25%.
In other recent news, Workday reported a steady performance in its second quarter fiscal 2025 earnings call. The company saw a 17% increase in subscription revenue, reaching $1.903 billion, and a 16% growth in the 12-month backlog. Workday also achieved a 25% non-GAAP operating margin and announced a new $1 billion share repurchase program.
Workday's recent developments include significant customer acquisitions, including J.B. Hunt, Nissan (OTC:NSANY), Target (NYSE:TGT), and Trinity Health. The company has also formed strategic partnerships with Salesforce (NYSE:CRM) and Equifax (NYSE:EFX), aimed at bolstering sales and innovation.
Workday's Financial Management reached 2,000 customers and was named the market share leader in Worldwide SaaS ERP revenue by Gartner (NYSE:IT) for 2023. The company is planning for moderated subscription revenue growth and accelerated margin expansion, projecting approximately 15% annual subscription revenue growth and a non-GAAP operating margin of 30% for FY '26 and FY '27.
The company's outlook indicates an expectation for the current IT spending environment to persist, which it considers the new norm.
InvestingPro Insights
As Piper Sandler reaffirms its optimistic stance on Workday (NASDAQ:WDAY), highlighting the company's potential for margin improvement and growth drivers, real-time data from InvestingPro further enriches this outlook. Workday's financial health is underscored by its ability to hold more cash than debt, an InvestingPro Tip that suggests a strong balance sheet. Additionally, the company's significant role as a prominent player in the Software industry is likely to support its strategic initiatives and innovation efforts.
InvestingPro Data shows that Workday has a market capitalization of $61.3 billion and has demonstrated robust revenue growth, with a 17.07% increase over the last twelve months as of Q2 2025. The company's gross profit margin stands at an impressive 75.77%, indicating efficient cost management and a strong competitive position in the market. Despite not paying dividends, which aligns with the company's growth-focused strategy, Workday's commitment to profitability is evident, with analysts predicting the company will be profitable this year, another InvestingPro Tip that aligns with Piper Sandler's positive assessment.
For readers seeking a deeper dive into Workday's financial metrics and potential investment opportunities, additional InvestingPro Tips are available, offering a comprehensive analysis of the company's valuation, liquidity, and market performance. To explore these insights, visit the InvestingPro platform, which currently lists over 10 additional tips for Workday.
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