Workday Reports Q2 Non-GAAP EPS of $2.21, Revenue of $2.35B, Exceeding Analyst Estimates

Workday has reported Q2 Non-GAAP EPS of $2.21, beating estimates by $0.09. Revenue for the quarter was $2.35B, a 13% YoY increase and $10M above expectations. The company has also provided guidance for Q3 FY26, with subscription revenues expected to be $2.235B.

Title: Workday Reports Strong Q2 Earnings, Guides Q3

Workday Inc. (NASDAQ: WDAY) reported its Q2 Non-GAAP EPS of $2.21, beating estimates by $0.09. Revenue for the quarter was $2.35 billion, a 13% YoY increase and $10 million above expectations. The company has also provided guidance for Q3 FY26, with subscription revenues expected to be $2.235 billion.

Workday's Q2 results reflect robust revenue growth and margin expansion, despite a challenging macroeconomic environment. The company's AI-driven initiatives, such as Illuminate Agents and AI Marketplace, are transforming its platform from a traditional ERP to a productivity-first solution. These innovations are designed to automate decision-making processes and accelerate application development, positioning Workday to capture value beyond its core ERP offerings.

The company's strategic partnerships and customer wins further bolster its market position. Notable additions include Seattle University, Clemson University, and Presbyterian Healthcare Services, highlighting the scalability of Workday's cloud-first model. Workday now serves 70 million users and has over 2,000 Financial Management customers, underscoring its ability to attract and retain clients in diverse industries.

Workday's forward P/E of 26.05 offers a 9% discount to the SaaS sector average of 28.39, reflecting market caution amid broader economic uncertainty. The company's strong balance sheet, with $7.37 billion in cash and a $1.0 billion share repurchase program, provides a buffer against macroeconomic shocks.

Analysts are split on Workday's prospects. While some see the company's AI initiatives as a potential breakout catalyst, others are concerned about slowing growth and high valuations. The key question is whether Workday's AI-driven ecosystem can offset decelerating revenue growth.

Investment Thesis: A Calculated Bet on AI-Driven SaaS

For investors, the calculus hinges on three factors:
1. AI's Scalability: Can Workday's AI tools achieve widespread adoption, or will they remain niche?
2. Margin Sustainability: Will the 25.25% non-GAAP operating margin guidance hold as R&D and sales costs rise?
3. Macro Resilience: How will a potential recession or interest rate hike impact Workday's customer retention and expansion?

The data suggests a bullish case for long-term investors. Workday's AI-driven ecosystem, combined with its strong cash flow and strategic partnerships, creates a compelling narrative. However, near-term volatility remains a risk.

Conclusion: A Premium Valuation, But Justified?

Workday's Q2 earnings underscore its ability to innovate in a crowded SaaS market. While the valuation discount to peers may seem modest, it reflects the market's skepticism about AI's immediate impact. For investors with a 3–5 year horizon, the company's AI-centric roadmap, expanding ecosystem, and financial discipline justify a premium.

Investment Advice: Consider a buy for those comfortable with near-term volatility and bullish on AI's transformative potential. A stop-loss at $125 (based on May 2025 data) and a $150 price target (28x 2025 EPS) provide a margin of safety. For conservative investors, a wait-and-watch approach until Q3 results and AI adoption metrics clarify is prudent.

In a slowing SaaS market, Workday's AI-driven reinvention may yet prove to be the catalyst that reignites growth—and its valuation.

References:
[1] https://www.ainvest.com/news/workday-q2-earnings-ai-driven-innovation-reignite-growth-slowing-saas-market-2508/
[2] https://seekingalpha.com/news/4488117-workday-non-gaap-eps-of-2_21-beats-by-0_09-revenue-of-2_35b-beats-by-10m
[3] https://www.investing.com/analysis/workday-q2-earnings-preview-agentic-ai-seen-as-a-potential-breakout-catalyst-200665691