Analysts attended Workday, Inc WTAG Rising Conference and Analyst Day and had mixed reactions.
Needham Analyst Scott Berg repeated a purchase and a price target of $220, citing strong attendance with impressive demand trends driven by customer/partner energy.
While missing a significant new product announcement, the company announced several improvements to key products that it believes should allow it to maintain its strong differentiation.
The company reiterated its 20% subscription growth target on its way to $10 billion in organic revenue, but sustained HCM growth could easily push that 20% growth target higher, macroeconomics notwithstanding.
Management also announced its expectation that margin leverage will return in FY24 after being compressed in FY23. The increased focus on vertical specialization has been a key theme that we believe can further drive fin adoption.
MorganStanley Analyst Keith Weiss has an Overweight rating and a price target of $282. He said Workday’s management “could have done more to defuse the outlook” at the company’s analyst meeting.
Weiss noted that CEO Aneel Bhusri, who told an analyst that growth above 20% is a “plan” and not a “commitment,” “exudes no confidence in that 20%,” even as his comments indicated that a volatile macroeconomic background is not under their control are “very true”.
However, management has done a good job of explaining why the longer-term, secular free cash flow growth potential at Workday outweighs the near-term macro risk, Weiss said. He feels this durability is not priced at current levels.
The company is sustaining revenue growth of more than 20% with best-in-class unit economics that give it a clear view that operating margins will improve from 19% today to 25%, likely in the next three years, Weiss added.
Canaccord Analyst David Hynes reiterated his buy rating and price target of $200.
Hynes walked away with a firm belief that most of the HCM and financial systems on record would eventually move to the cloud. Workday is the clear category…
