Sometimes beating expectations just isn't enough. Workday, Inc. (WDAY) proved that Wednesday when shares tumbled despite posting third-quarter results that sailed past Wall Street's projections.
The Numbers Tell a Good Story
Workday reported adjusted earnings of $2.32 per share for the third quarter, comfortably ahead of the $2.18 consensus estimate. Revenue came in at $2.43 billion, topping expectations of $2.41 billion. The company's subscription revenue climbed 14.6% year-over-year to $2.24 billion, while operating income jumped to $259 million from $165 million in the same quarter last year.
The operational performance looked solid across the board. Workday closed the period with a 12-month subscription revenue backlog of $8.21 billion, representing 17.6% year-over-year growth, boosted partly by the acquisition of Paradox. Cash generation remained robust, with operating cash flows hitting $588 million and free cash flow reaching $550 million. The company also bought back 3.4 million shares for $803 million during the quarter.
Management emphasized progress in its AI portfolio and continued platform innovation. Recent developments included fresh customer wins, deeper enterprise relationships, the rollout of several AI-powered tools, and completed acquisitions targeting conversational hiring and enterprise knowledge solutions.
So Why the Selloff?
Following the earnings release, analysts started trimming their price targets, which likely contributed to the downward pressure on shares. Bernstein analyst Mark Moerdler kept his Outperform rating but lowered his target from $304 to $298. Keybanc's Jason Celino maintained an Overweight rating while dropping his target from $285 to $260. Stifel's Brad Reback held his Hold rating and cut the target from $255 to $235. RBC Capital's Rishi Jaluria stayed at Outperform but reduced his target from $340 to $320.
Not everyone turned more cautious. Morgan Stanley analyst Keith Weiss maintained an Equal-Weight rating but actually raised his price target from $255 to $280.
Where Things Stand
At last check, Workday shares were trading 8.46% lower at $213.75. The stock appears to be hunting for support as momentum shifts despite the fundamentally solid quarter.
