Workday shares slide 5% as revenue outlook offers little upside surprise

Investing.com -- Shares of Workday fell 5% in extended trading on Thursday as investors looked past a modest quarterly revenue beat and focused on a third-quarter subscription revenue forecast that offered little upside surprise.

For the third quarter, Workday forecast subscription revenue of $2.515 billion, slightly above analysts' estimate of $2.51 billion. For the full fiscal year, it expects subscription revenue of $9.940 billion to $9.950 billion, broadly in line with analysts' estimate of $9.95 billion.

The stronger outlook underscores Workday's push to turn growing interest in AI into higher-value customer relationships while improving profitability. The company said AI accounted for more than 25% of new annual contract value in the quarter, while more than 5,500 customers were using at least one of its organic AI agents, up more than 35% from the previous quarter.

For the quarter ended July 31, revenue rose 12.8% to $2.649 billion from $2.348 billion a year earlier, while adjusted diluted earnings per share increased to $2.75 from $2.21. The results topped analysts' expectations of $2.64 billion in revenue and $2.61 in adjusted earnings per share.

Workday's subscription backlog also strengthened. Its 12-month subscription revenue backlog rose 14.2% from a year earlier to $9.034 billion, while total subscription revenue backlog increased 8.0% to $27.403 billion.

Adjusted operating income increased to $824 million, or 31.1% of revenue, from $680 million, or 29.0%, a year earlier. Adjusted diluted earnings per share rose to $2.75 from $2.21, while adjusted net income increased to $677 million from $598 million.

Workday also stepped up shareholder returns, repurchasing about 9.8 million shares for $1.3 billion during the quarter. Its board separately authorized an additional $4 billion in open-ended share repurchases. The company ended July with $3.403 billion in cash, cash equivalents and marketable securities.

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