Workday Stock Falters on Guidance Disappointment Despite Earnings Beat

Shares of Workday (NYSE: WDAY) took a tumble on Tuesday evening after the company reported fiscal 2025 first quarter earnings that surpassed Wall Street expectations but disappointed with its updated guidance. Despite the earnings beat, the stock retreated more than 7% in extended trading, as investors reacted negatively to the company's revised outlook for subscription revenue growth.

Workday reported earnings of $0.40 per share on revenue of $273.4 million, surpassing analysts' estimates of $0.28 per share and $258.2 million, respectively. However, the company's guidance for fiscal 2025 subscription revenue growth was revised down to 17% from the previous estimate of 17.5%. This revision, coupled with a reduced outlook for backlog growth, raised concerns about the company's growth trajectory.



Workday's strong earnings performance was overshadowed by the disappointing guidance. The company's calculated billings were up 35% year-over-year, and total revenue increased by 36%, reflecting solid growth. However, investors seemed more focused on the company's outlook than its solid performance.

Workday's strategic investments in AI and expanding its partner ecosystem have been well-received, but the market may have been expecting more aggressive guidance. The company's performance in specific sectors, such as healthcare, public sector, and financials, remained strong, with clear areas of outperformance. Despite the disappointing guidance, Workday's strong performance in key sectors and continued investment in growth initiatives suggest that the company remains well-positioned for long-term, durable growth.



Workday's updated guidance reflects a cautious optimism amidst a challenging macroeconomic environment. The company revised its subscription revenue guidance down due to increased sales scrutiny and lower customer headcount growth. While the earnings beat signals Workday's ability to maintain profitability and margin expansion in the face of macroeconomic headwinds, the guidance miss highlights the importance of careful monitoring and adaptability in navigating market uncertainties.

Analysts and investors have reacted with caution to Workday's guidance revision, given the company's earnings beat. While the stock has fallen due to the disappointing outlook, many remain optimistic about the company's long-term growth prospects. Morgan Stanley's Keith Weiss downgraded Workday's rating to 'Equal-Weight' from 'Overweight,' citing concerns about the revised guidance. However, he also noted that the company's earnings beat was impressive, and its fiscal 2025 non-GAAP operating margin outlook of 25.0% is still attractive.

In conclusion, Workday's stock fell despite beating earnings estimates as investors were disappointed with the company's updated guidance. The market appeared to be more concerned with the company's outlook than its solid performance. Workday's strategic investments and growth initiatives were well-received, but the market may have been expecting more aggressive guidance. Despite the setback, Workday remains confident in its long-term growth prospects and is focused on scaling its go-to-market engine and partner ecosystem to drive enduring growth.