It may be based in the US but Workday (NASDAQ: WDAY) is critical to the FTSE 100. As a global leader in business management software, it helps some of our nation’s top companies manage their day-to-day operations.
From healthcare to banking, it is the software-of-choice for some of the biggest names in the UK market. Think AstraZeneca, GSK, Rolls-Royce and Lloyds. Even the London Stock Exchange Group uses it!
Covering human resources, financials and planning, Workday helps companies hire staff, process payroll and track finances. It is an all-in-one solution provider that seems to be enjoying widespread success lately, up 9.6% in the past month to $265 per share.
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Impressive results
In its latest Q3 results announced last week, many metrics outpaced analysts’ expectations. Revenue clocked over $1.87bn, an impressive growth of 16.7% year-on-year. This was mainly driven by an 18.1% boost in subscription revenue, the core of the company’s business.
Earnings per share (EPS) beat analyst expectations, climbing to 43 cents compared to a loss of 29 cents in Q3 last year. Operating cash flows climbed $42m to $450m.
The company’s performance this year has not gone unnoticed. It was named as a Leader in two cloud-related sectors of the Gartner Magic Quadrant and its product VNDLY was named a 2023 Top HR Product of the Year.
“Following our continued momentum in the third quarter, we are raising our fiscal 2024 subscription revenue guidance to $6.598 billion, representing 19% year-over-year growth,” said chief financial officer Zane Rowe.
The AI angle
According to Workday, artificial intelligence (AI) and machine learning have been a big contributor to its success this year – but is there a risk involved? As a rapidly growing segment of today’s digital world, AI continues to draw attention — and controversy — from voices around the world.
Seldom does a day go by without some drama surrounding the subject, usually involving OpenAI’s Sam Altman and Tesla‘s Elon Musk. But even as AI implementations already seem far beyond the point of no return, people still question the tech’s safety.
Workday’s very own marketing materials expound its combined AI features as “an unstoppable force shaping solutions for today and tomorrow.” One of those features is Workday Illuminate, which is described as a “trustworthy and responsible AI with robust risk mitigation features”.
It certainly sounds good on paper – but AI-related benefits (and risks) are difficult to quantify.
Market outlook
Financial risk is more my thing and Workday is no stranger to that. It faces competition from business software giants like SAP and Oracle and risk from job market fluctuations. Fewer employees mean less demand for employee software. It’s no secret the US labour market has slowed recently, which could dampen growth in the company.
Yet in Europe things look good for the firm. Its UK division almost doubled profits in 2024, rising from $15.6m to $29.5m. That seems to suggest a healthy job market on this side of the pond.
While it has a somewhat high price-to-earnings ratio of 43.9, its net profit margin is good at 19.8% and it has a low debt-to-equity ratio of 35.7%.
Overall, it seems to be in a decent financial position with moderate growth potential. Right now my own tech stock allocation is full. However, investors looking for tech exposure might want to consider the stock.
