Workday Performance Review: Q2 Meets Or Exceeds Even The Highest Expectations

Reviewing Workday Inc (NYSE: WDAY)'s fiscal year 2018 second-quarter results, Deutsche Bank said the quarterly print met its high expectations.

As such, the firm maintains its Hold rating but raised its price target for the shares from $95 to $105, given the solid tone of the print.

At time of writing, Workday shares were up 1.36 percent at $109.

Analyst Karl Keirstead noted subscription revenues were up 42 percent, consistent with the previous quarter, and billings growth, though accelerating to 29 percent to $548 million, missed his $556 million estimate. Operating margin of 9.3 percent and operating cash flow of $15 million also exceeded expectations, Keirstead added.

Additionally, Deutsche Bank noted that the company raised its 2018 revenue guidance by far more than the second-quarter beat. Summarizing, the firm said the numbers and tone of Workday's results were strong despite smaller HCM SaaS peers posting mixed results of late.

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Things the firm liked about the results:

• 40 percent, plus, growth in subscription revenues.
• 10 percent sequential growth in total subscription backlog.
• An uptick in HCM deal activity in the F500.

The firm said the 59-percent revenue growth and wins in Europe, especially with Siemens AG (ADR) (OTC: SIEGY), imply share gains against SAP SE (ADR) (NYSE: SAP).

However, the firm was not too happy about the sequential decline in long-term DR, as the company is not pushing for multi-year prepays. The company guided to third quarter long-term DR of just $75 million. Additionally, the firm feels total billings growth will decelerate in the third quarter.

On valuation, Deutsche Bank noted that the outperformance of the company's stock has precluded it from being bullish. With the 2018 revenue multiple of 11 times, the firm said its view on the stock remains mixed.

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