On Friday, UBS revised its outlook on Workday (NASDAQ:WDAY), a leading provider of enterprise cloud applications for finance and human resources, by reducing the company's price target from $280.00 to $255.00. The firm has decided to maintain its Neutral rating on the stock.
Workday's first quarter results, ending in April, indicated a challenging period for the company, with economic headwinds contributing to increased deal scrutiny and slower customer headcount growth than anticipated.
These factors have had a direct impact on the company's calculated remaining performance obligations (cRPO) growth, which is a critical indicator of future revenue. The cRPO growth for the first quarter was only in line with expectations, and the guidance for the second quarter, ending in July, suggests a growth of 15-16%, significantly below the expected 17-18%.
The slowdown in cRPO growth is notable, having fallen from over 20% throughout fiscal year 2024 to potentially below 15% in the second half of fiscal year 2025. In response to these trends, Workday has adjusted its fiscal year 2025 subscription revenue growth forecast downward by approximately $50 million, equating to a 1% decrease.
The UBS analyst expressed concerns over the severity of the cRPO growth deceleration, questioning whether the modest reduction in the full-year revenue guidance is sufficient to reflect the company's changing prospects. Despite these concerns, UBS has chosen to remain neutral on Workday's stock at this time.
InvestingPro Insights
As UBS revises its outlook on Workday, investors can benefit from considering real-time data and insights from InvestingPro. With a market capitalization of $69.21 billion and a P/E ratio of 49.61, Workday is positioned as a significant player in the software industry. The company's revenue growth over the last twelve months as of Q4 2024 stands at a robust 16.78%, showcasing its ability to expand in a competitive market. Moreover, Workday's gross profit margin of 75.6% reflects its operational efficiency and ability to maintain profitability amidst economic challenges.
InvestingPro Tips highlight Workday's financial stability, with the company holding more cash than debt on its balance sheet, which can be a reassuring sign for investors concerned about the company's ability to weather economic headwinds. Additionally, Workday's stock generally trades with low price volatility, offering a potentially more stable investment option in the volatile tech sector. For investors seeking further insights, there are 12 additional InvestingPro Tips available, which can be accessed with the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
These metrics and insights can provide a more nuanced perspective on Workday's performance and potential, complementing the analysis provided by UBS and offering investors additional factors to consider in their decision-making process.
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