Workday's Earnings Exceed Expectations, Raises Full-Year Profit Margin Outlook

Workday (NASDAQ: WDAY) reported better-than-expected results for the first fiscal quarter on Thursday and raised its full-year adjusted operating margin outlook, boosting the company's share price which surged over 10% after hours. Previously, the company's stock had come under considerable pressure due to market concerns that AI might impact the demand for enterprise software.

The cloud service provider, which specializes in financial management and human resources software, reported revenue of $2.54 billion for the quarter ending April 30th, above analysts' expectations of $2.52 billion and a year-over-year increase of 13%. Adjusted earnings per share were $2.66, also exceeding the market expectation of $2.51 compiled by LSEG. Key metric subscription revenue grew by 14.3% to $2.35 billion, slightly above the average analyst expectation of $2.34 billion.

In terms of profitability, Workday raised its full-year adjusted operating margin forecast from the 30% set in February this year to 30.5%, while maintaining its full-year revenue growth guidance of 12% to 13%. For the second fiscal quarter, the company expects an adjusted operating margin of 30% and subscription revenue of $2.46 billion, both in line with market expectations.

During the quarter, Workday announced that co-founder Aneel Bhusri will replace Carl Eschenbach as Chief Executive Officer and declared the Sana AI smart agent product officially open to customers. Workday has been committed to embedding AI capabilities throughout its platform, betting that tools like automated task processing, job description generation, and expenditure pattern analysis will drive customer adoption rates and deepen platform usage stickiness.

"Our core business is strong, our AI strategy is working, and we are moving forward with the speed and focus needed to lead the industry," Bhusri said in a statement. Chief Financial Officer Zane Rowe also said that the company will continue to advance the implementation of the intelligent agent AI roadmap while driving operational efficiency improvements in scale expansion.

Workday's share price has fallen by about 43% this year, marking the worst performance since it went public in 2012, while the S&P 500 index has risen by about 9% during the same period. Market concerns about generative AI potentially compressing the growth space of mainstream software companies have been the main drag. The significant rebound after hours on Thursday indicates that investors have regained confidence in the company's ability to convert AI into profitability."