Workday, a software company specializing in financial and human capital management, is looking to boost its stock price as shares remain slightly lower than their end-2021 levels. After positive Q4 results, including a 15% revenue growth year-over-year and significant contributions from its AI solutions, the company is on a growth trajectory. It added numerous new customers and reported a strong subscription revenue backlog, indicating future growth potential. With expectations of a 14% increase in subscription revenue for fiscal year 2026 and improved operating margins, Workday appears to be a strong investment option. Investors should consider buying now as the company focuses on leveraging AI for continued expansion and profitability.
With shares currently trading just below their late 2021 levels, Workday (WDAY) is striving to boost its stock price. After the company’s recent Q4 reports and future guidance, there was a noticeable lift in shares, driven by its strategic focus on artificial intelligence (AI) to spur growth.
Even with these recent gains, Workday’s shares are down over 10% compared to the past year. So, what do the Q4 results and forecasts reveal about whether now is a good time to invest?
Expanding Operating Margins
In its Q4 report for fiscal 2025, which ended on January 31, Workday exceeded analyst expectations. The company saw its revenue rise by 15% to $2.21 billion, with subscription revenue growing by 16% to reach $2.04 billion. This not only surpassed its own forecasts but also outpaced analyst predictions. Adjusted earnings per share (EPS) rose 22% to $1.92, exceeding the consensus of $1.78.
AI played a crucial role in this growth, with 30% of customer expansions involving AI products. One notable success is Workday’s Extend Pro product, which allows clients to create AI applications on top of its platform—its annual contract value (ACV) has more than doubled recently. Workday has also expanded its customer base, now serving 11,000 clients, including over 60% of the Fortune 500.
The company’s subscription revenue backlog has seen significant growth as well, rising by 15% to $7.63 billion and total subscription revenue backlog jumping by 20% to $25.06 billion. These metrics are positive indicators of future revenue prospects.
Workday continues to generate impressive cash flow, totaling $2.46 billion for the year, and ended with $8 billion in cash. The company also bought back 2.9 million shares in an effort to offset dilution from stock-based compensation.
Looking Ahead
For fiscal 2026, Workday expects subscription revenue growth of 14%, forecasting $8.8 billion. Their operating margin is projected at a promising 28%, an increase from the previous year’s margin of 25.9%. For the first quarter, subscription revenue is anticipated to grow by 13% to $2.05 billion.
Workday’s approach to AI has evolved successfully; it initially integrated AI into its core offerings. Now, with strong returns emerging from those solutions, the company is exploring new monetization avenues. Recent launches include AI agents for contracts, payroll, financial auditing, and policy, which bring unique skills to support users.
Is Now the Right Time to Buy?
Although Workday has transitioned from being a high-growth company, now stabilizing with solid mid-teens growth rates, it shows promise with improved operating margins. This trend suggests earnings could rise faster than revenue.
With a forward price-to-sales ratio of 7.6 and a P/E ratio just above 32 based on fiscal 2026 estimates, the stock appears reasonably valued, considering its high-margin subscription model. The growing traction of AI solutions should further enhance revenue growth.
In conclusion, Workday’s combination of AI-driven revenue growth and improving margins makes its stock an appealing buy right now.
Tags: Workday, WDAY, AI, SaaS, stock Market, fiscal reports, subscription revenue, investment analysis, financial growth.
What is Workday’s focus with AI technology?
Workday is focusing on using AI to improve its software for businesses. They aim to make operations smoother and help companies make better decisions with data.
Has Workday’s turnaround been successful so far?
Many experts think Workday’s focus on AI is showing positive results. They are gaining more customers and improving their services, which is a good sign for the company’s turnaround.
Should investors consider buying Workday stock now?
Investors are weighing their options. Some believe that as Workday continues to grow with AI, now could be a good time to buy. However, they should also look at the overall Market and company performance before deciding.
What are the potential risks of investing in Workday?
Like any stock, investing in Workday carries risks. These include competition in the tech industry, changes in customer needs, and economic factors that could impact business spending.
How does Workday’s AI compare to its competitors?
Workday’s AI technology is recognized as innovative and user-friendly. While many companies are using AI, Workday’s unique approach may give it an edge depending on how they implement these technologies moving forward.