WDAY : NYSE : US$65.75
Workday provides enterprise-scale, cloud applications that deliver the core functions for global customers to manage the human capital and financial resources of an organization. Solutions include: HCM, Financial Management, Payroll, Time Tracking, Procurement, Employee Expense Management, etc. Workday was founded by the former founders of PeopleSoft in 2005 and is headquartered in Pleasanton, CA.
Workday delivered another of what we expect to be several more years of quarterly beat and raises. In a world of near-zero interest rates, a fast scaling firm like WDAY is likely to see its revenue growth exceed gradual multiple compression so that investors can logically expect 15%+ annual rates of return on the stock. Reiterate BUY and increasing price target to $75 (up $5).
Strong start to FY: another upside quarter. WDAY reported Q1/14 revenues of $91.6M, which was $4.1M ahead of our estimate and represented
normalized y-o-y growth of 75% (99% on the subscription line). Calculated billings of $107.3M were up 31% y-o-y and beat our estimate by $1.5M.
WDAY generated free cash flow of $15.3M (inclusive of several one-time gains), which was well ahead of our expectation for a material loss.
Business highlights: large enterprises continue to select WDAY. During the quarter Bristol Myers and Levi Strauss chose WDAY for HR as well as
University of Miami for the full WDAY applications suite. Notable go-lives in the quarter included Johnson & Johnson, London Stock Exchange, and Cornell University. WDAY ended the quarter with more than 450 customers, of which 290 are live (up from 265 at the end of last quarter).
Outlook: go-forward estimates inch nicely higher again. WDAY increased F2014 guidance by $5M and called for an operating loss that at mid-point was 250 bps better than last expected. We have increased our F2014 and F2015 revenue estimates by $8M and $10M, respectively, which are now 60% and 50% y-o-y revenue growth (and likely still a bit conservative