Workday (WDAY): Slowing Growth and Rising Concerns for the HCM and Financial Software Provider

Workday (WDAY) has delivered solid EPS results for the tenth consecutive quarter but faces growing concerns about slowing growth. As enterprises continue to consolidate their HR and finance functions onto its platform, the company has seen a slowdown in its subscription revenue growth, which is expected to continue in the coming quarters.

In-depth Analysis: Workday has been a leader in the Human Capital Management (HCM) and financial software space, but recent results have raised concerns about its future growth prospects. While the company has exceeded EPS expectations for the past ten quarters, its subscription revenue growth has been slowing. In Q3, subscription revenue grew by 15.8%, a decline from the previous quarter’s growth of 17.2%. The company’s Q4 and FY26 subscription revenue guidance also came in below analysts’ expectations, further contributing to the cautious sentiment surrounding the stock.

A key issue for Workday is deal scrutiny, especially in international markets like EMEA (Europe, the Middle East, and Africa), where revenue growth has slowed to 16% from 18% in the previous quarters. Despite this, the company’s international expansion still has plenty of runway for growth, as Workday derives only 25% of its revenue from overseas.

On the positive side, Workday has made significant strides in integrating AI tools into its offerings. Over 30% of its customer expansions in Q3 involved AI-driven features, which could help boost revenue growth in the coming quarters. The company is also forecasting solid operating margin growth in the coming years, with FY26 and FY27 non-GAAP margins expected to reach 27.5% and 30%, respectively.

Key Takeaways:

• Slowing subscription revenue growth is a concern, with Q4 and FY26 guidance below expectations.
• Deal scrutiny and international growth challenges have affected revenue growth in some regions.
• Workday is investing in AI tools, which could provide a growth catalyst in the future.
• Operating margins are improving, providing optimism for future profitability.