Nearly a Year After IPO, Workday Appears to Be Working Out
It has been nearly a year since Workday, the cloud-based human-resources software company, first debuted on the New York Stock Exchange. On Tuesday, it will report its quarterly results after the markets close, and that makes this as good a time as any to check up on its performance.
Having opened at $47.05 on its first day of trading, Workday shares have risen by 61 percent since then, closing Friday at $75.76. Sales have been rising, too. In its quarter ended in April, sales rose by more than 60 percent versus the year-ago period. Subscription revenue, a key metric for cloud companies who charge their customers on an ongoing basis, was north of $68 million — up by more than 85 percent.
That sets up some high expectations for the current quarter and the year ahead. In a note to clients out today, analyst Brad Reback of Stifel Financial in St. Louis said Workday looks “poised to deliver another strong quarter.”
Even so, on paper, it’s still not making a profit. On a non-GAAP basis last quarter, Workday reported a net loss of 15 cents a share.
You can say that’s okay for a relatively young company, which Workday is, but it’s also typical of companies in the cloud software business. The best-known cloud company, Salesforce.com reported a net loss on both its 2012 and 2013 fiscal years, and that company’s CEO, Marc Benioff, has argued that the time was right to invest aggressively in winning new customers and to expand into related lines of business, like marketing software.
Reback expects Workday to report a loss this quarter, as well. He’s looking for a 17-cent-a-share loss on a non-GAAP basis, which is slightly better than the 18-cent loss predicted by the consensus view of analysts surveyed by Thomson Financial. He expects sales to come in slightly above the $100 million mark, and billings to be $125 million.
“Based on our recent channel checks and conversations with customers, we believe demand for the company’s solutions remains solid and there is a healthy possibility it delivers some potential upside to our results,” Reback wrote.
That said, the share price may have gone as high as it’s going to for now, as most of the good news about Workday is already “priced in” to its share price. At $75.50 a share, the company is trading at a valuation of 17 times estimated sales for 2014 of about $440 million. That’s a much higher multiple than other cloud companies, which trade at less than six times forward revenue.
“We believe at current levels the stock is pricing in a lot of good news and with any missteps could see a healthy pullback,” Reback wrote.