Workday Inc: ‘a slow but consistently growing SaaS story’

Workday Inc (NASDAQ: WDAY) swung to a profit in Q3 and raised guidance for the future, but shares still fell about 10% in extended trading.

Jefferies’ Thill explains the sell-off on CNBC’s ‘Closing Bell’

On CNBC’s “Closing Bell”, Jefferies’ Brent Thill attributed the sell-off to billing growth that fell shy of Street estimates. He agreed that growth in the current subscription backlog wasn’t very promising either but said:

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Overall, I think Workday is on a great trajectory. It’s taking market share against Oracle and SAP. We’re fans, we like architecturally where they sit. It’s a slower growing SaaS story, but it’s one that’s consistent. Once you commit to Workday, you’ll be on it for a long time.

Thill rates Workday at “buy” with a price target of $350 that represents an about 30% upside from here. The stock has underperformed its competition, but the Jefferies’ analyst is convinced it’s well-positioned to benefit from the “renovation of the back office”.

Important points in Workday’s Q3 earnings report

Workday reported $43.4 million in net income that translates to 17 cents per share. In the same quarter last year, it was in the red with $24.3 million in loss or 10 cents per share. On an adjusted basis, the software company earned $1.10 per share.

The California-based company generated $1.33 billion in revenue, representing about 20% annualised growth. Subscription revenue printed at $1.17 billion versus the year-ago figure of $969 million, as per the earnings press release.

In comparison, analysts had forecast 87 cents of adjusted EPS on $1.31 billion in revenue.

For the full year, Workday now forecasts up to $4.535 billion in subscription revenue, including $1.216 billion to $1.218 billion its expecting in the current quarter – roughly matching experts’ prediction.

Also on Thursday, Workday said it will buy Vndly for $510 million.