Workday Q4 Earnings: Strong Results Propel Stock to Multi-Month Highs

Workday (WDAY) delivered a strong fourth-quarter earnings report, sending its stock surging 15% to $288, its highest level since December 12. The sharp move higher is particularly notable given the broader weakness in the software sector, as the iShares Expanded Tech-Software ETF (IGV) has recorded five straight daily losses, its longest losing streak since 2022.

Investors will be watching closely to see if WDAY can hold these gains. A reversal lower could signal renewed pressure on the broader software space, while sustained strength may mark a turning point for enterprise software stocks.

Q4 Performance vs. Expectations

Workday exceeded expectations across key financial metrics in the fourth quarter, reporting strong growth in subscription revenue, operating margins, and profitability.

- Adjusted EPS was $1.92 versus $1.78 expected, up 22% year-over-year.

- Revenue reached $2.21 billion compared to $2.18 billion expected, increasing 15% year-over-year.

- Subscription revenue totaled $2.04 billion versus $2.03 billion expected, up 16% year-over-year.

- Professional services revenue came in at $171 million compared to $156.1 million expected, growing 5.6%.

- Adjusted operating margin expanded to 26.4%, exceeding the 25.1% estimate and improving from 23.9% in the prior year.

Key Drivers of Growth

Workday’s strong fourth-quarter performance was driven by continued demand for its cloud-based HR and financial management solutions, a growing AI monetization strategy, and margin expansion through cost efficiencies.

1. Enterprise customer growth was strong, with new customers including Bayer, Henkel, Iberostar, the state of North Carolina, and First-Citizens Bank & Trust Co. The company also expanded relationships with Cisco, Mondelez, Sutter Health, and Toyota.

2. AI monetization continues to scale, with 30% of new customer expansions in the quarter involving one or more AI-driven products, such as Extend Pro, Recruiting Agent, and Evisort. Extend Pro saw new annual contract value more than double quarter-over-quarter, highlighting demand for AI-powered HR and finance automation.

3. Full-suite adoption is increasing, with a record number of core financial management wins in the quarter. More than 2,000 customers now leverage Workday’s full suite of HR and finance solutions, driving higher contract values.

4. Cost efficiencies contributed to improved profitability, with adjusted operating margin expanding to 26.4%, benefiting from revenue outperformance and disciplined cost management.

Guidance: Solid Growth Outlook for Fiscal Year 2026

Workday provided a constructive outlook for fiscal 2026, with steady subscription revenue growth and improved profitability.

- First-quarter fiscal 2026 subscription revenue is projected at $2.05 billion, representing 13% growth.

- Full-year fiscal 2026 subscription revenue is expected to reach $8.8 billion, reflecting 14% growth.

- Full-year fiscal 2026 adjusted operating margin is forecast at 28%, signaling continued margin expansion.

Management noted that AI-related products and financial management solutions are expected to drive additional revenue opportunities in the second half of the year, suggesting potential upside to guidance.

Workday’s AI Strategy: Expanding Monetization

AI is becoming an increasingly important revenue driver for Workday, and the company is now actively monetizing AI-powered features that deliver measurable return on investment.

1. The Agent System of Record was introduced, providing enterprises with a centralized AI management system to oversee AI-driven workforce automation tools from Workday and third-party vendors.

2. Workday launched four new AI-driven agents for contracts, payroll, financial auditing, and policy enforcement, further expanding its AI ecosystem.

3. Extend Pro, an AI-powered product enabling companies to build applications on top of Workday’s platform, saw annual contract value more than double quarter-over-quarter, underscoring strong demand for AI-driven automation in HR and finance.

With over one trillion transactions processed on its platform in fiscal 2025, Workday is leveraging the largest and cleanest HR and financial dataset in the industry, giving it a competitive advantage in AI development and monetization.

Market Reaction and Technical Levels

The 15% surge in DAY stock has pushed it to its highest level since December 12, rallying from $254 to $288 in the aftermath of the earnings report.

- Near-term support is around $270.

- Resistance levels are between $290 and $295.

- A break below $270 could signal that the post-earnings rally is fading, leading to renewed pressure on software stocks.

Given that enterprise software stocks have been under pressure in 2024, Workday’s rally is a key test for sentiment in the sector. If WDAY can hold these gains, it could signal renewed confidence in enterprise software, while a reversal lower may suggest further downside risk for technology stocks.

Conclusion

Workday delivered an impressive fourth-quarter report, exceeding expectations on EPS, revenue, and operating margins while providing a constructive outlook for fiscal 2026 with 14% subscription revenue growth and 28% operating margins.

AI monetization continues to gain momentum, with Workday actively selling AI-powered HR and finance solutions that are driving higher customer contract values and expanding its market opportunity.

With shares surging 15% in response, Workday’s ability to hold these gains will be an important signal for broader software sector sentiment, as investors look for a potential bottom in enterprise software stocks.