On Friday, Goldman Sachs (NYSE:GS) adjusted its outlook for Workday (NASDAQ:WDAY), a leading provider of enterprise cloud applications for finance and human resources. The firm's analyst has lowered the price target to $300 from the previous $310, while maintaining a Buy rating on the company's shares.
The revision follows Workday's announcement of reduced subscription revenue guidance for fiscal year 2025 to 15.5% at the midpoint, a decrease from the prior 17.5%. The change in guidance, which is the first in recent history, came despite the company posting an in-line quarter. Post-market trading saw Workday's stock price decline by 11%, as investors processed the updated guidance figures, including a calculated remaining performance obligation (cRPO) growth of 15.5% in the second quarter, compared to 18% in the first quarter, and the obscured outlook for fiscal year 2027 targets of 17-19%.
Goldman Sachs acknowledged investor concerns regarding Workday's ability to meet future targets but interpreted the lowered expectations as a potential opportunity. The firm's analyst believes the factors impacting the fiscal year 2025 guidance, such as increased deal scrutiny and slower customer headcount growth, are predominantly cyclical.
The analyst emphasized Workday's strong business fundamentals, noting the company's stable competitive win rates, product expansions, and operational leverage as indicators of effective execution.
Workday's key growth initiatives were also highlighted, including successful penetration into the mid-market, largely insulated from deal scrutiny, and bolstered by enterprise support from AWS, with $75 million in pipeline, and a new deal with GCP marketplace.
The company also saw an acceleration in partner-generated demand, which contributed more to the pipeline and annual contract value in the first quarter than the entire previous fiscal year. Additionally, Workday's non-Core HCM products, such as Financial Management Solutions (FINS) and full-platform sales, have grown over 20% year-over-year.
Goldman Sachs concluded that while investors might seek further proof of these positive trends, Workday's valuation at 6 times enterprise value to calendar year 2025 sales reflects modest and attainable expectations.
InvestingPro Insights
As Workday (NASDAQ:WDAY) navigates through a period of adjusted revenue guidance and investor scrutiny, real-time data from InvestingPro offers additional context for the company's financial health and market position. With a market capitalization of $69.21 billion and a P/E ratio of 49.61, Workday appears to trade at a premium, reflective of its stature as a prominent player in the software industry. Despite a reduced subscription revenue guidance, the company has demonstrated a strong revenue growth rate of 16.78% over the last twelve months as of Q1 2023, a testament to its competitive resilience.
Two notable InvestingPro Tips highlight Workday's financial stability: the company holds more cash than debt on its balance sheet and has liquid assets that exceed short-term obligations. These insights suggest a solid financial foundation, which may reassure investors of Workday's capacity to navigate short-term market fluctuations. Moreover, Workday's stock is characterized by low price volatility, providing a relatively stable investment option in the tech sector.
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