Workday (NASDAQ:WDAY) Exceeds Q3 CY2025 Expectations

Enterprise software company Workday (NASDAQ:WDAY) reported third-quarter CY2025 results that exceeded market revenue expectations, with sales increasing 12.6% year over year to $2.43 billion. Its non-GAAP profit of $2.32 per share was 6.7% above analysts’ consensus estimate.

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• Income: $2.43 billion vs. analyst estimates of $2.42 billion (12.6% year-over-year increase, 0.7% beat)

• Adjusted EPS: $2.32 vs. analyst estimate of $2.17 (6.7% green)

• Adjusted Operating Income: $692 million vs. analyst estimates of $679.2 million (28.5% margin, 1.9% beat)

• operating margin: 10.6%, which is higher than 7.6% in the same quarter last year

• Free Cash Flow Margin: 22.6%, down from 25% last quarter

• Billings: Ended the quarter at $2.40 billion, up 16.6% year over year

• Market Capitalization: $60.51 billion

“Workday delivered another solid quarter, driven by the strength and diversity of our business and the momentum we are seeing in our AI portfolio,” said Carl Eschenbach, CEO of Workday.

Born from the vision of the PeopleSoft founders following the hostile acquisition of their previous company by Oracle, Workday (NASDAQ:WDAY) provides cloud-based software for financial management, human resources, planning and analytics to help organizations manage their business operations.

The long-term sales performance of a company can indicate its overall quality. Any business can have short-term success, but top-tier businesses grow over years. Over the past five years, Workday grew its sales at a 17.3% compound annual growth rate. While this growth is acceptable on an absolute basis, it is a bit low by our standards for the software sector, which enjoys several secular tailwinds.

Long-term growth is most important, but within software, a half-decade historical view may miss new innovations or demand cycles. Workday’s recent performance shows that demand has slowed as its annual revenue growth of 15% over the past two years was below its five-year trend.

This quarter, Workday reported revenue growth of 12.6% year over year, and its revenue of $2.43 billion exceeded Wall Street estimates by 0.7%.

Looking ahead, sell-side analysts expect revenue to grow 12.6% over the next 12 months, a slight slowdown compared to the past two years. This estimate does not excite us and suggests that its products and services will face some demand challenges.

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Billings is a non-GAAP metric often called “cash revenue” because it shows how much money a company has collected from customers over a certain period of time. This differs from revenue, which must be recognized piecemeal over the term of the contract.

Workday’s billings came in at $2.40 billion in Q3, and over the past four quarters, its growth slightly lagged the sector as it grew an average of 13.5% year-over-year. This performance reflects its total sales and suggests that increasing competition is creating challenges in acquiring/retaining customers.

Customer acquisition cost (CAC) payback period measures the number of months a company needs to recoup the money spent on acquiring new customers. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Workday does a good job of acquiring new customers, and its CAC payback period this quarter was 46.7 months. The company’s relatively rapid recovery of customer acquisition costs gives it the option to accelerate growth by increasing its sales and marketing investments.

It was encouraging to see that Workday beat analysts’ billings expectations this quarter. Overall, there were some major positives to this print. The stock rose 1.3% to $236.43 shortly after the results.

Sure, Workday had a solid quarter, but if we look at the bigger picture, is this stock worth buying? If you’re making this decision, you should consider the bigger picture of valuation, business merits as well as the latest earnings. We cover this in our full actionable research report which you can read here, it’s free to Active Edge members.