Piper Sandler downgrades Workday on waning growth prospects

Investing.com -- Piper Sandler downgraded Workday Inc (NASDAQ: WDAY) Inc to "neutral" from "overweight" on Wednesday, citing concerns over waning growth prospects as subscription revenue and bookings continue to decrease.

The brokerage also trimmed its price target to $270 from $285, noting that while Workday's operating margin is improving, expected to reach 27.5% by FY2026, sluggish deferred revenue trends and changing payment terms could pressure free cash flow margins.

The firm highlighted five consecutive quarters of declining current remaining performance obligations (cRPO) growth, with guidance for Q4 suggesting a further slowdown to 13.5%-14.5% growth, compared to 21.9% in Q3 FY2024. This trend reflects tough year-over-year comparisons and delays in recognizing strategic deals, Piper Sandler said.

“Growth fatigue has set in for us on Workday as we reluctantly move to the sidelines, even if Q1 marks the trough,” Piper Sandler wrote, adding that confidence in growth recovery hinges on the materialization of contributions from international markets, new products, and partner channels.

While highlighting some strengths, including momentum in full-suite deals within government and higher education sectors, Piper Sandler said Adobe (NASDAQ: ADBE) rated "overweight" with $635 price target, "overweight" rated Veeva with $280 PT and Salesforce (NYSE: CRM), better alternatives in the current environment.

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