Workday Posts Solid Q1 Beat, but Soft cRPO and Cautious Macro Outlook Drag Shares

Workday (WDAY) delivered a solid set of first-quarter results that topped expectations on revenue and earnings, driven by subscription strength and expanding margins. However, despite reaffirming its full-year outlook and boosting its operating margin target, a softer-than-expected showing in current remaining performance obligations (cRPO) and macro commentary around IT spending pressures weighed on sentiment. Shares fell sharply in the wake of the report, reflecting a market still demanding perfection from AI-leveraged software names.

Earnings Beat and Subscription Growth Lead the Way

For the fiscal first quarter ended April 30, Workday reported adjusted earnings per share of $2.23, well ahead of the Street's $2.01 estimate. Revenue rose 12.6% year over year to $2.24 billion, topping consensus of $2.22 billion. The outperformance was driven by subscription revenue, which climbed 13.4% to $2.06 billion, accounting for the bulk of the top line. Strong margin execution was also a notable positive—non-GAAP operating margin expanded to 30.2%, up from 25.9% a year earlier.

The company’s GAAP figures reflected the impact of recent restructuring: operating income came in at $39 million, down from $64 million a year ago, due to $166 million in related expenses. Diluted net income per share was $0.25, versus $0.40 in the prior year.

Cash flow remained a highlight, with free cash flow increasing to $421 million from $291 million last year. Workday also returned $293 million to shareholders via share repurchases and ended the quarter with nearly $8 billion in cash and equivalents.

CRPO Misses the Mark Despite Headline Beat

One of the more closely watched metrics this quarter was current remaining performance obligations (cRPO), which came in slightly above internal guidance—beating by 60 basis points. However, analysts flagged that roughly 50 basis points of that upside came from contracts tied to implementation and testing environments, which weren’t part of original guidance.

That nuance raised questions about demand strength and renewal cadence. William Blair’s Jake Roberge noted the beat was “smaller than normal,” attributing it to a lower volume of early renewals compared to prior quarters. Since cRPO is a key forward-looking indicator of subscription revenue growth, the market appeared to interpret this as a sign of moderating momentum.

Outlook Reaffirmed, Margin Guide Raised

For the fiscal second quarter ending in July, Workday guided to subscription revenue of $2.16 billion, implying 13.5% year-over-year growth. This was just shy of consensus at $2.164 billion and didn’t offer the upside some investors were hoping for.

The company reaffirmed its full-year FY26 subscription revenue outlook of $8.8 billion, representing 14% growth. Additionally, Workday raised its full-year non-GAAP operating margin target from 28.0% to 28.5%, reflecting ongoing cost efficiencies despite reinvestments into AI capabilities.

Management also reiterated confidence in their long-term AI strategy and noted positive customer ROI trends. However, CEO Carl Eschenbach flagged areas of potential softness, particularly in the public and higher education sectors, where federal funding uncertainty could delay decisions.

Market Reaction: Sharp Selloff Despite Results

Despite beating on key headline metrics, Workday shares dropped sharply following the release. The stock fell over 12% to $238.31 in Friday’s session, wiping out its year-to-date gains and undercutting support near the $253 level. Analysts generally described the results as solid but noted the lack of material upside or narrative shift, which may have triggered a “sell the news” reaction in a high-expectation environment.

Evercore analysts called it a “slight beat/keep quarter” and suggested bulls would need patience amid the ongoing macro debate. Jefferies maintained a Buy rating and $325 target, highlighting margin expansion and stable guidance. Meanwhile, D.A. Davidson bumped its target to $250 while holding a Neutral stance, citing reinvestment of restructuring savings into AI as a long-term positive.

Conclusion

Workday’s Q1 report demonstrated operational discipline, strong margin execution, and resilience in core subscription growth. However, the lack of a clear upside surprise on forward indicators like cRPO and muted second-quarter guidance left little to excite growth-focused investors. In a macro backdrop that remains fragile—particularly for enterprise IT budgets—the burden remains on Workday to prove that AI-fueled demand and its expanding platform can accelerate growth meaningfully in the back half of FY26.