Here’s Why Workday’s Stock Is Heading Substantially Higher
Workday (NYSE:WDAY) is a lesser known cloud based computing company with a market cap of $15 billion dollars and a share price of $82.25. The company itself provides enterprise cloud applications for global human resources and finance in the United States and internationally. It offers applications for customers to manage critical business functions that enable it to optimize its financial and human capital resources.
The company provides the Workday Human Capital Management application that includes global human resources management comprising workforce lifecycle management, organization management, compensation, absence, and employee benefits administration; and global talent management consisting of goal management, performance management, succession planning, and career and development planning, as well as project and work management designed to enable organizations to create and manage and track initiatives, build project plans, and utilize project breakdown structures that include phases, tasks, and milestones.
A growing company, it also offers Workday Payroll, a payroll application designed to address the enterprise payroll needs by allowing customers to group employees, manage calculation rules, and pay employees according to their organizational, policy, and reporting needs; and Workday Financial Management tools that provide the core finance functions of general ledger, global accounting, revenue management, accounts payable, employee expense management, and accounts receivable, along with tools to help organizations manage their cash, assets, contracts, grants, expenses, procurement, and support their financial reporting requirements, as well as offer management reporting and analysis in real time. It serves technology, financial services, business services, healthcare and life sciences, manufacturing, consumer and retail, and education and government industries. The company is firing on all cylinders and I think the stock is a good buy even at these high levels given its growth trajectory.
In its most recent quarter, Workday reported total revenues of $159.7 million, an increase of 74 percent from the first-quarter of fiscal 2014. Subscription revenues were $123.4 million, an increase of 80 percent from same period last year. However, the company still took a loss as it is growing. Operating loss was $52.1 million, or negative 32.6 percent of revenues, compared to an operating loss of $32.6 million, or negative 35.6 percent of revenues, in the same period last year. Overall, the net loss per basic and diluted share was $0.32, compared to a net loss per basic and diluted share of $0.20 in the first-quarter of fiscal 2014. Operating cash flows were $21.7 million and free cash flows were $11.8 million. For the trailing twelve months, operating cash flows were $50.7 million and free cash flows were a negative $33.1 million. In total, cash, cash equivalents, and marketable securities were approximately $1.9 billion as of April 30, 2014. Unearned revenue was $461.9 million, a 54 percent increase from last year.
Success was driven largely by major advances during the quarter. For example, Workday announced the availability of Workday Recruiting, a new application that is seamlessly unified with Workday Human Capital Management to redefine the way today’s hiring teams find, engage, and select the best internal and external candidates for open positions. The company also unveiled Workday 22 with 347 new human resources and finance features to give global organizations greater visibility to manage talent, customer accounts, spend, and expenses. Aneel Bhusri, co-founder and CEO stated:
Our fiscal year is off to a great start with strong customer demand for our newest application, Workday Recruiting, and double digit customer growth for Workday Financial Management. Our technology innovations, including our recent move to a single code line for development, enabled us to update all customers on Workday 22 in less than six hours, creating more value for our customers and setting new expectations for the industry.
Looking ahead, second-quarter revenues are expected to be within a range of $173 and $178 million or growth of 61 percent to 65 percent as compared to the prior year. Total revenues for the year are anticipated to be in the range of $730 and $750 million or growth of 56 percent to 60 percent. Total billings in the first-quarter were $208 million and benefitted from several new large customers and the company expects total billings for the second-quarter to decrease sequentially. However, for the year, the company expects total billings to be approximately $890 to $910 million. With this rise in billings, the incredible rate of growth of 60 to 80 percent for major indicators, and a stock with very positive momentum, I think this stock will easily trade over $100 in the coming weeks.
Disclosure: Christopher F. Davis holds no position in Workday and has no plans to initiate a position in the next 72 hours. He has a buy rating on the stock and a $107 price target.
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