Workday Plunges As Valuation Seen Leaving Little Room For Weak Guidance
Following softer than expected guidance, shares of Workday (WDAY) are sliding in morning trading and putting a drag on peers Salesforce (CRM) and Tableau Software (DATA). Workday's cautious forecast, coupled with the company's management comments during its earnings conference call, sparked a downgraded to Sell at Societe General and several price target cuts by Wall Street analysts.
RESULTS: Last night, Workday reported third quarter earnings per share of 3c and revenue of $409.6M, above consensus, estimates a (4c) per share loss and $400.4M in revenue. Additionally, the company said it sees 2017 revenue of $1.56B-$1.563B, with consensus at $1.56B, and fourth quarter revenue of $427M-$430M, below the consensus forecast of $433.6M. Speaking during Workday's earnings conference call, CEO Aneel Bhusri warned of slippage of some large deals in the fourth quarter. "We have seen a few multinational prospects delay their projects. Some attribute the delay to global uncertainties, such as Brexit, the U.S. presidential election and pending elections in other GA countries. We suspect and hope these are isolated events that will be short-lived," he noted. Adding to those remarks, CFO Robynne Sisco said she expects 2018 subscription billings growth in the low-teens.
SOCIETE GENERAL SAYS SELL: In a post-earnings note, Societe General downgraded Workday to Sell from Hold, citing the stock's premium valuation. The firm believes the company's shares are expensive and investor's fears of a possible sharp slowdown in Subscription growth may pressure the stock. Meanwhile, Jefferies analyst John DiFucci lowered his price target for Workday to $71 from $79. The analyst acknowledged that the company reported "solid" third quarter results, but noted that its fourth quarter top line guidance was below expectations. DiFucci believes it is "unlikely that investors will be forgiving" given Workday's high valuation, and reiterated a Hold rating on the shares. His peer at Oppenheimer also cut his target for Workday to $88 from $100 for similar reasons. However, analyst Brian Schwartz kept an Outperform rating on the shares.
WORKDAY NOT "BROKEN": In a research note of his own after earnings, William Blair analyst Justin Furby noted he is frustrated by the change in management's tone quarter-over-quarter, but said nothing has changed with his long-term view of Workday's opportunity and its competitive positioning in the cloud ERP market, particularly given his round of recent partner surveys which suggests demand and pipelines remains healthy. While further patience may be required, the company's story is "by no means broke," he contended. Further, the analyst told investors that he would be a long-term buyer of the shares on today's weakness. Furby reiterates an Outperform rating on the stock. JMP Securities analyst Patrick Walravens also remains upbeat on the company as he thinks the deals which slipped could still close, Workday could still announce Amazon (AMZN) as a key customer and the company should be boosted by the "inevitable" move to enterprise financial applications to the cloud. Walravens reiterated an Outperform rating on the stock but lowered his price target on the shares to $91 from $93.
PRICE ACTION: In morning trading, shares of Workday have dropped about 15% to $69.50, while Salesforce and Tableau Software are both back to flat after being lower to start the session.
Disclosure: None