Workday Expected to Price IPO Today, Start Trading Tomorrow
The offering is expected to raise upward of $591 million, and it should command a market capitalization of about $5 billion after trading of its shares begins on the New York Stock Exchange.
The company specializes in human resources software that runs in the cloud, and has a lot of buzz owing much to the story of its origins. Co-founders and co-CEOs Aneel Bhusri and Dave Duffield ran PeopleSoft, a human resources software concern that was targeted for a hostile takeover by Oracle and its CEO Larry Ellison in 2005.
A lot of people have focused on Workday as being something of a revenge project for Bhusri and Duffield, but the pair have tended to dissuade that view. “We don’t think about Larry or have any animosity. …You have to bless Larry’s heart for giving us this opportunity. I would never have been part of this Workday thing without Larry,” Duffield told Bloomberg Businessweek over the summer.
But it’s clear that Ellison has been thinking about Workday. He never misses a chance to disparage it, as he did at D:All Things Digital in June. And according to a count by Bloomberg TV, Ellison has mentioned Workday eight times in Oracle earnings calls, as many as he has another rival, Salesforce.com.
As the old saying goes, there’s no such thing as bad publicity, and when someone like Larry Ellison kicks you in public, people are going to wonder what all the fuss is about. The fuss, it turns out, is real, though not yet sizable.
According to its latest filings with the SEC, Workday has 340 customers, most of them large companies, among them electronics manufacturing giant Flextronics, the Four Seasons hotel chain, insurer AIG and consumer-health giant Kimberly Clark. Workday says its largest deployment is with a customer with a workforce of more than 200,000 people. And another, potentially bigger one, is on the way: Hewlett-Packard CEO Meg Whitman also disclosed last week that HP is deploying Workday, and it has a global work force north of 300,000. Google is a new customer, too.
While that all sounds impressive, and seems like an excellent indicator of momentum, Workday is still relatively small. It reported revenue that was just shy of $120 million in the first six months of the year, and if it finishes the year at double that figure, it doesn’t appear quite muscular enough to pose much of a threat — at least not yet — to Oracle, whose applications software business, including HR apps, was $3 billion in 2012.
However, the story about Workday is less about what it is today than about what it could become in the next few years. A more accurate measure of that potential is bookings — essentially the combined value of multiyear contracts. By that measure, Workday is more impressive: Bookings are on track to break the $500 million mark this year.
Workday’s advantage is that it is supposedly cheaper to operate than the older, established way of installing software on company-owned systems. Customers never have to actually touch cloud software, and therefore don’t have to pay for the ongoing service and support contracts that come with software that runs the old way.
The fundamental pivot toward running applications in the cloud is making many converts. Oracle just spent most of last week talking about how its applications — including its HR software — can run purely on a software-as-a-service basis, or installed on hardware that the customer owns, or in a flexible mix-and-match manner.
So, while Workday may not overtly be about “revenge of the PeopleSoft guys,” its brewing matchup with Oracle, if nothing else, will bear watching in the months and years to come.