Workday Q4 Earnings Preview: A Key Test for Growth and Outlook

Workday (WDAY) is set to report its fourth-quarter fiscal 2025 earnings on February 26, after the market close, with investors watching closely to see how the company performs following its recent preannouncement and restructuring plan. Analysts expect earnings per share (EPS) of $1.81 and revenue of $2.23 billion, representing year-over-year growth of approximately 13.5 percent.

While Workday has a strong history of exceeding expectations, this quarter presents a crucial test following a Morgan Stanley downgrade and broader concerns about enterprise software demand. Shares are down 2 percent ahead of earnings, sitting just above their 200-day moving average at $244, which could be tested if guidance disappoints.

February 5 Preannouncement and Restructuring Plan

Earlier this month, Workday provided an unscheduled update, stating that it expected Q4 results to be in line with or above prior guidance, except for GAAP operating margin, which will take a hit due to restructuring charges.

The company announced a workforce reduction of approximately 1,750 employees, or 8.5 percent of total staff, as part of a plan to reprioritize investments in AI and international expansion. While Workday emphasized that hiring in key areas would continue, it also disclosed that it would exit certain office spaces as part of cost-cutting efforts.

Workday expects to incur between $230 million and $270 million in restructuring charges, with $60 million to $70 million recognized in Q4 and the remainder in Q1 2026. Analysts will be watching closely for additional details on how these cost reductions might impact long-term profitability.

Q3 Reaction and Recent Stock Performance

Workday last reported earnings on November 26, 2024, delivering solid Q3 results but guiding for weaker-than-expected subscription revenue growth, which triggered a 6 percent drop in shares the next day. Despite exceeding revenue estimates by 1.4 percent, the outlook overshadowed the results, reflecting growing investor sensitivity to enterprise software demand.

Following a strong 2024 rally, Workday shares have struggled in 2025, weighed down by broader weakness in the software sector and multiple compression risks. The stock fell again on February 12, dropping 2.2 percent after Morgan Stanley downgraded WDAY to Equal Weight from Overweight, citing concerns about slowing growth.

Morgan Stanley Downgrade and Growth Concerns

Morgan Stanley's recent downgrade highlighted concerns that Workday’s go-to-market investments have not translated into stronger overall company growth.

The firm had previously been bullish on Workday’s expansion into financial management (FINS) and cross-selling opportunities but noted that consensus revenue growth estimates have deteriorated over the past two years.

Additionally, recent weak enterprise software earnings, softening demand signals from industry partners, and increasing competition raise near-term risks for the stock. While Workday remains a high-quality company with strong customer retention, its valuation is no longer as compelling in the current macro environment, according to Morgan Stanley.

Key Growth Drivers for Workday

Despite these concerns, Workday continues to focus on several long-term growth initiatives.

- Financial Management (FINS) expansion remains a key focus, as Workday looks to grow beyond its core human capital management (HCM) business.

- AI integration is a major priority, with the recent launch of the Workday Agent System of Record, a centralized AI-driven platform designed to help enterprises manage AI-powered workflows more efficiently.

- International growth is another opportunity, as Workday expands its presence outside North America, particularly in Europe and Asia.

- Strategic partnerships, such as the recent collaboration with Nayya to provide AI-driven health and financial benefits solutions, are expected to strengthen Workday’s position in enterprise HR technology.

While these initiatives are promising, analysts will be looking for evidence that they are translating into stronger subscription revenue growth, which was a point of concern in Q3.

Will Workday Issue a Soft Outlook?

One of the biggest questions for investors is whether Workday will offer a muted outlook for fiscal 2026.

While the company has beaten revenue expectations in every quarter for the past two years, analysts expect revenue growth to slow to 13.5 percent in Q4, down from 16.7 percent a year ago.

Recent weak results from other enterprise software companies suggest that Workday’s guidance could err on the conservative side, particularly given broader macroeconomic uncertainty.

If Workday fails to project strong growth or offers cautious commentary, the stock could test its 200-day moving average at $244 and face additional pressure.

Technical Levels and Market Sentiment

Workday shares have seen choppy price action in recent weeks, with resistance near $265 and support at $244.

- If results are strong and guidance is upbeat, a move back toward $275 (Morgan Stanley’s revised price target) could be possible.

- If Workday disappoints on growth expectations or margins, a break below $244 could trigger further downside pressure.

Analyst sentiment remains largely positive, with 24 out of 34 analysts rating $WDAY a Strong Buy and an average price target of $292.39, suggesting an 8 percent upside from current levels. However, this optimism will need to be reinforced by strong Q4 execution and a compelling growth outlook.

Conclusion: A High-Stakes Report

Workday’s Q4 earnings report comes at a pivotal time for the company, as it looks to rebuild investor confidence after a mixed Q3 and a recent downgrade from Morgan Stanley.

While the February 5 preannouncement suggests that Q4 results will be at or above expectations, soft enterprise software trends, potential macro headwinds, and restructuring-related costs could weigh on sentiment.

If Workday demonstrates strong subscription revenue growth and provides an encouraging outlook, shares could rebound toward the upper end of their recent range. However, any signs of slowing demand or cautious guidance could put pressure on the stock and test key support at $244.

Investors will be watching closely for insights into Workday’s AI strategy, international expansion, and financial management growth, as these will be crucial in determining the company’s longer-term trajectory.