Goldman Sachs is out with its near-term forex outlook
Workday, Inc. (NASDAQ:WDAY), a prominent player in the Software (ETR:SOWGn) industry with a market capitalization of $69 billion, announced on Wednesday a significant restructuring plan that includes the reduction of its workforce by approximately 1,750 positions, equating to 8.5% of its employees.
This decision is part of a strategic initiative to prioritize investments and focus on sustainable growth. According to InvestingPro data, the company maintains strong financial health with a 75.6% gross profit margin and robust revenue growth of 16.8% over the last twelve months.
The company anticipates incurring charges between $230 million to $270 million related to the restructuring, with $60 million to $70 million expected to be recognized in the fourth quarter of fiscal 2025.
The remainder of the charges is projected to be accounted for in the first quarter of fiscal 2026. These costs are primarily associated with severance, employee benefits, and related cash expenditures, estimated at $145 million to $175 million, and non-cash charges of approximately $50 million to $60 million for stock-based compensation.
Additionally, Workday expects to record around $35 million in non-cash impairment charges for office space in the first quarter of fiscal 2026. Despite these charges, InvestingPro analysis shows the company maintains a healthy current ratio of 2.05, indicating strong ability to meet short-term obligations.
Despite the workforce reduction, Workday intends to continue hiring in key strategic areas and locations throughout the fiscal year ending January 31, 2026. The company also plans to exit certain owned office spaces as part of the restructuring efforts.
In a related financial update, Workday expects its fiscal 2025 fourth quarter and full-year financial results to align with or exceed previous guidance, except for the GAAP operating margin, which is now forecasted to be 22 to 23 percentage points lower for the fourth quarter and 21 percentage points lower for the full year compared to non-GAAP operating margins. Charges associated with the restructuring plan will be excluded from the non-GAAP financial measures.
Based on InvestingPro's Fair Value analysis, the stock currently appears slightly overvalued, though analysts maintain a positive outlook with an average upside potential of 15%. For deeper insights into Workday's valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
The actions related to the restructuring plan are expected to be substantially complete by the second quarter of fiscal 2026, following local laws and consultation requirements. The estimates regarding the charges and timing may change based on various factors, including local laws in different jurisdictions.
Workday is scheduled to report its fiscal 2025 fourth quarter and full-year financial results on February 25, 2025. The information in this article is based on a press release statement.
In other recent news, Bernstein analysts have identified Oracle (NYSE:ORCL), Microsoft (NASDAQ:MSFT), and SAP as top software picks for 2025. They caution investors to be more cautious with companies such as Workday, Adobe (NASDAQ:ADBE), and MongoDB (NASDAQ:MDB), while recommending to stay on the sidelines with Snowflake (NYSE:SNOW) due to concerns about potential underperformance of Salesforce (NYSE:CRM).
Deutsche Bank (ETR:DBKGn), on the other hand, has upgraded Workday stock from Hold to Buy, indicating confidence in the company's solid fundamentals and potential for sustained revenue growth. Guggenheim has also revised its stance on Workday, upgrading the stock from Sell to Neutral, citing a balanced setup in the company's subscription revenues.
RBC Capital Markets has increased its price target for Workday, maintaining an Outperform rating, signaling confidence in the company's prospects. These developments are part of a series of recent analyst evaluations and recommendations, providing investors with a glimpse into the potential performance of these companies. However, it's important to note that these are only projections and actual performance may vary.
Finally, shares of AppLovin (NASDAQ:APP) and The Trade Desk (NASDAQ:TTD) experienced declines after they were not included in the latest S&P 500 Index rebalance, while Workday saw a rally as it was announced to be joining the index. This shows the impact of S&P 500 inclusion or exclusion on the perception and performance of a company's stock.
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