Workday 2026 Q1 Earnings Misses Targets as Net Income Falls 36.4%

Workday (WDAY), ranking 193rd by market capitalization, reported its fiscal 2026 Q1 earnings on May 22nd, 2025. The company reported a 12.6% increase in revenue to $2.24 billion, narrowly beating analyst estimates of $2.22 billion. However, Workday's earnings per share (EPS) of $0.25 fell short of market expectations, reflecting a significant 37.5% decrease from the previous year. The company maintained its full-year subscription revenue guidance, aligning with market forecasts, but its Q2 guidance suggests a subscription revenue growth rate of 13%, slightly exceeding expectations.

Revenue

Workday's total revenue increased to $2.24 billion in Q1 2026, representing a 12.6% year-over-year growth. The revenue breakdown showed that subscription services contributed $2.06 billion, while professional services added $181 million. Together, these segments propelled the company's overall financial performance for the quarter.

Earnings/Net Income

Workday's EPS dropped significantly by 37.5% to $0.25 in Q1 2026 from $0.40 in the same period last year. Additionally, net income fell 36.4% to $68 million from $107 million. The sharp decline in EPS indicates challenges in maintaining profitability.

Price Action

The stock price of Workday edged up 1.35% during the latest trading day, decreased by 0.96% for the most recent full trading week, and saw a 23.11% surge month-to-date.

Post-Earnings Price Action Review

Over the past three years, a strategy of purchasing Workday shares following a revenue drop on earnings release dates and holding them for 30 days has proven profitable, yielding a cumulative return of 31.5% from May 22, 2022, to May 22, 2025. This suggests that despite initial negative market reactions to revenue declines, investor sentiment tends to recover as confidence in Workday's long-term potential is restored. The positive returns from this strategy indicate that market corrections post-earnings may present buying opportunities for savvy investors, as the company often experiences subsequent rebounds or favorable adjustments in investor outlook.

CEO Commentary

Carl Eschenbach, Chief Executive Officer, expressed satisfaction with Workday's solid Q1 performance, highlighting a 13% subscription revenue growth and a 30% non-GAAP operating margin. He emphasized that the company remains focused on customer success amid economic uncertainties, stating, "Our customers are looking to continuously consolidate on top of the Workday platform." Eschenbach noted the relevance of Workday's value proposition, driven by AI innovations and a robust dataset, which enhances operational efficiencies. He acknowledged the opportunities in the emerging and medium enterprise markets, asserting, "We see a significant growth opportunity," while indicating confidence in navigating macro challenges.

Guidance

Workday reiterates its subscription revenue guidance of $8.8 billion for FY '26, anticipating Q2 subscription revenue of approximately $2.16 billion, reflecting 13% growth. The company expects its non-GAAP operating margin to be around 28% for Q2 and approximately 28.5% for FY '26. Additionally, Workday projects a 15% to 16% growth in cRPO for Q2, including about 1 percentage point from tenant contracts. The outlook for FY '26 also maintains an operating cash flow target of $2.75 billion and capital expenditures around $250 million.

Additional News

In recent developments, Workday announced Edward Charter as the new Country Leader for Canada on May 20, 2025. This appointment aims to strengthen Workday's presence and leadership in the Canadian market. Additionally, on May 19, 2025, Workday unveiled the next generation of Illuminate Agents, which is set to transform HR and finance operations with advanced AI capabilities. Moreover, Workday was recognized as a leader in the 2025 Gartner® Magic Quadrant™ for Cloud-Based ERP for U.S. Local Government on May 21, 2025, further solidifying its position as a key player in the ERP market.