Workday Inc. shares fluctuated in the extended session Monday after the human-resources cloud-software company said it was still on track for growth targets, despite a setback, offering a conservative guidance in a tough cloud-software market.
Workday
WDAY,
shares swung between gains and losses of as much as 3% in after-hours trading following the release of the report, after a 1% rise in the regular session to close at $184.93.
As the company faces a sketchy spending environment, it promised to return to 20%-plus subscription growth. It also said it was still on target for growing operating margins to 25% for an opportunity of “well beyond $10 billion,” as the company said back on its analyst day in September.
While margins for the fourth quarter rose to 18.5% from 17.2% in the year-ago period, they fell to 19.5% for the year, down from 22.4% in the previous year.
Workday also said it expected subscription revenue of $6.53 billion to $6.58 billion, for 17% to 18% growth, for the year, a noticeable drop from the 22.5% annual growth it had just reported, because of uncertainty about the near-term spending environment. Analysts surveyed by FactSet had forecast subscription revenue of $6.58 billion for the year.
Carl Eschenbach, co-chief executive, told analysts on a conference call that Workday planned on returning to 20%-plus subscription growth “when the environment improves.”
In its forecast for adjusted operating margins of 23%, Workday noted it included a 150-basis-point tailwind from “a change in our useful life policy for servers and network equipment.”
Barbara Larson, Workday’s chief financial officer, told analysts on the call the company was extending useful life for equipment to five years from three. Workday makes applications that help companies automate human-resources and business tasks like payroll and expenses, while tracking employee data.
That’s similar to a move back in January from Intel Corp.
INTC,
which said it was extending the useful life of its equipment to eight years from a previous five years to help improve margins.
Read: Cloud software is a ‘fight for a knife in the mud,’ and Wall Street is souring on the one sector that was winning
Meanwhile, Aneel Bhusri, Workday’s chairman and co-chief executive, told analysts the company was going to “double down” on AI and machine learning by expanding its investment in growth areas such as generative AI by $250 million.
The company also addressed its AI posture in appointing Sayan Chakraborty as co-president to focus on “areas including artificial intelligence and machine learning.”
Sayan, who sits on the National Artificial Intelligence Advisory Committee, will continue heading Workday’s Product and Technology organization.
Also, Robynne Sisco will step down as co-president and become vice chair, to coordinate between the global sales team and the office of the CFO, the company said.
The Pleasanton, Calif.-based company reported a fourth-quarter loss of $125.7 million, or 49 cents a share, compared with a loss of $73.3 million, or 29 cents a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, were 99 cents a share, compared with 78 cents a share in the year-ago period.
Revenue rose to $1.65 billion from $1.38 billion in the year-ago quarter, while subscription revenue rose 21.7% to $1.5 billion from a year ago. Analysts had forecast adjusted earnings of 89 cents a share on revenue of $1.63 billion and subscription revenue of $1.49 billion.
Read: Workday gets downgraded to hold as analyst expects cycle to favor lagging software names
Workday shares are down 18% over the past 12 months, while the S&P 500
SPX,
has declined 9%, and the tech-heavy Nasdaq Composite
COMP,
has dropped 16%.
Over the past year, the iShares Expanded Tech-Software Sector ETF
IGV,
has fallen 18%, the Global X Cloud Computing ETF
CLOU,
has dropped 17%, the First Trust Cloud Computing ETF
SKYY,
has dropped 27%, and the WisdomTree Cloud Computing Fund
WCLD,
has plummeted 31%.
