Factors Setting the Tone for Workday's (WDAY) Q4 Earnings
Workday, Inc. WDAY is scheduled to report fourth-quarter fiscal 2019 results on Feb 28.
Notably, the company has surpassed the Zacks Consensus Estimate in the trailing four quarters, recording average positive surprise of 46.5%.
In the last reported quarter, Workday delivered non-GAAP earnings of 31 cents per share, beating the Zacks Consensus Estimate of 15 cents. The figure also improved 29.2% year over year.
Strong growth can primarily be attributed to a surge of 33.8% in revenues, which totaled $743.2 million. The figure surpassed the Zacks Consensus Estimate for revenues of $723 million.
The robust top-line performance was driven by solid growth in subscription and professional revenues.
Guidance & Estimates
For the fourth quarter, management anticipates revenues to come in the range of $775 million to $777 million. Specifically, for fourth-quarter fiscal 2019, Workday expects subscription revenues in the range of $663-$665 million (up 35% to 36%). Professional services revenues are projected at $112 million.
The Zacks Consensus Estimate for revenues is pegged at $776.8 million, indicating year-over-year growth of approximately 33.4%.
Meanwhile, the Zacks Consensus Estimate for earnings is pegged at 32 cents, indicating growth of 14.3% from the year-ago quarter.
Let’s see how things are shaping up prior to this announcement.
Factors at Play
Workday is leaving no stone unturned to enhance customer experience by adding extended capabilities and tools in Workday HCM and Workday Financial Management with an aim to bolster adoption.
The incremental adoption of the offerings is expected to favor top-line growth in the to-be-reported quarter. We believe improving customer satisfaction rate is another positive.
In fact, the company ended the last reported quarter with more than 8,500 customers. During the third quarter, the company added Bank of Montreal, Glencore International, and Piedmont Airlines, a subsidiary of American Airlines as its new HCM customers. The clientele includes more Fortune 500 customers driven by higher adoption of Workday Financial Management.
Additionally, the growing clout of Workday Cloud Platform, Workday Prism Analytics and Workday Marketplace bode well.
Recently, Genpact G inked partnership deal with the company as a Workday Advisory Services Partner. Per the terms of the alliance, Genpact will assist customers to deploy Workday Financial Management and the existing customers of the offering will be able to leverage Genpact Cora AI-based solution.
Partnerships with Duo Security and SkipFlag are also anticipated to aid Workday in expanding business in the to-be-reported quarter.
The company is also projected to benefit from the synergies of Adaptive Insights acquisition. The purchase is likely to aid Workday to evolve as a provider of enterprise-level software solutions for financial management and human resource domains.
In the recent past, the company also acquired Stories.bi and Rallyteam with an aim to enhance and expand machine learning (ML), artificial intelligence (AI) and data analytics capabilities to drive customer satisfaction.
Workday’s fourth-quarter results are expected to benefit from the aforementioned factors. However, intensifying competition from peers and higher marketing expenditure are major headwinds at least in the near term.
What Our Model Says
According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The sell-rated stocks (Zacks Rank #4 or 5) are best avoided.
Workday has a Zacks Rank #2 and an Earnings ESP of -0.80%, which makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks With a Favorable Combination
Here are some companies, which as per our model have the right combination of elements to post an earnings beat this quarter:
Live Nation Entertainment, Inc. LYV has an Earnings ESP of +2.41% and a Zacks Rank #1. The company is set to report fourth-quarter 2018 earnings on Feb 28. You can see the complete list of today’s Zacks #1 Rank stocks here.
Square, Inc. SQ has an Earnings ESP of +5.95% and a Zacks Rank #2. The company is slated to report fourth-quarter 2018 results on Feb 27.
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