Workday (WDAY), the SaaS giant, has been performing its own version of a stock market vaudeville act lately-dipping, dodging, and occasionally dazzling investors with numbers that would make even a Wall Street accountant giggle nervously into their abacus. As I write this, shares are down about 14% for the year, despite reporting Q2 results so solid they could bench-press an elephant.
Now, let’s cut to the chase-or should I say “cut to the cloud”? Workday specializes in financial and human capital management software, which sounds boring until you realize it’s basically running half the corporate world behind the scenes. And yet here we are, watching investors fret over how artificial intelligence might disrupt everything. Why? Because AI is like that cousin who shows up uninvited at Thanksgiving dinner and starts doing everyone else’s jobs better than they can. Seat-based pricing models? Suddenly looking as outdated as rotary phones.
But hold on, folks! Is this dip a golden opportunity to scoop up some discounted shares, or is it just another trapdoor in the floor of capitalism? Let me put on my portfolio manager hat-a very stylish one, if I do say so myself-and guide you through this theatrical performance.
Solid Results, But Will the Curtain Fall?
First things first: Workday isn’t sitting idly by while AI shakes up the stage. Oh no, they’ve grabbed the spotlight themselves. In Q2, more than 75% of sales to new customers included an AI solution, and 30% of existing customers hopped aboard the AI train too. Their net annual contract value from AI products doubled year-over-year faster than a magician pulling rabbits out of hats.
Their secret weapon? Workday Illuminate, which boasts having the “largest and cleanest” HR and finance database known to humankind-or at least known to enterprises willing to pay for such claims. From there, they deploy AI agents that handle HR, finance, and legal tasks with all the grace of Fred Astaire tap-dancing across a spreadsheet. They’ve also rolled out specific tools like Talent Optimization, Recruiting Agent, and Contract Intelligence Agent. It’s like hiring James Bond but without the martini habit.
And because why stop when you’re ahead, last week Workday announced plans to acquire Paradox, an AI company specializing in making hiring easier. Imagine trying to explain this acquisition to your grandparents: “Yes, Grandma, robots will now help us find people to hire other people.” Cue record scratch sound effect.
Turning back to reality-or what passes for it these days-their Q2 revenue climbed nearly 13% year-over-year to $2.35 billion. Subscription revenue jumped 14% to $2.17 billion, and adjusted earnings per share soared 26% to $2.21. Analysts were expecting less, naturally, because nothing says “underpromise and overdeliver” quite like beating consensus estimates by miles.
Of course, not every scene was rosy. The state and local government/higher education segment (SLED) gave them some grief-colleges losing federal funding does tend to cramp budgets-but hey, they snagged a big win with the University of Virginia. Meanwhile, international markets rebounded like Rocky Balboa after a knockout punch; Europe and Asia-Pacific delivered strong performances.
By the end of the quarter, Workday had $8.19 billion in cash and securities tucked away safely, alongside $3 billion in debt. Free cash flow? A cool $588 million. Not bad for a company whose name doesn’t involve lasers or spaceships.
Looking forward, management nudged guidance ever-so-slightly upward, thanks partly to Paradox joining the ensemble cast. Revenue growth projections ticked up slightly to 13%, though without Paradox, it’s essentially flatlining. Still, stability counts for something in this rollercoaster economy.
To Buy or Not to Buy? That Is the Question!
On the earnings call, CEO Carl Eschenbach dismissed fears about AI disruption as “completely overblown,” echoing sentiments that remind me of those old Looney Tunes cartoons where Wile E. Coyote insists he’ll catch Road Runner any day now. Sure, customer headcount growth has slowed, but only because companies went on a hiring spree during the tech boom years like teenagers raiding a candy store.
Let’s face facts: If seat-based pricing becomes passé, SaaS companies can pivot to consumption-based models quicker than you can say “pivot table.” Besides, Workday seems to be thriving amidst the chaos. While revenue growth no longer hits the dizzying heights of yore (20%-30%), profitability is galloping ahead like Secretariat in his prime.
At current valuations-a forward P/S ratio of 6.2 and a forward P/E ratio of 25-it feels like a bargain bin sale where all the good stuff somehow ended up marked down. For GARP-oriented investors (growth at a reasonable price), Workday looks ripe for picking.
So, dear reader, shall we buy the dip? In my expert opinion-as both a seasoned portfolio manager and someone channeling Mel Brooks today-I think it’s worth considering. After all, life is short, and opportunities like this don’t come around every day unless you’re stuck in a time loop à la Groundhog Day. 😊
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2025-08-26 12:25