Workday mobile app against dark keyboard
Surprise growth guidance cut leaves analysts shocked / Image source: Adobe
  • Stock slumps 10% pre-market, wiping $6 billion off market value
  • Surprise cut to long-term growth expectations at annual analyst day
  • Investors braced for widespread cuts to forecasts

Enterprise software giant Workday (WDAY:NASDAQ) is primed to fall heavily when trading reopens on Wall Street today. Based on pre-market data, the shares face a 10% decline to $208, having closed overnight at $230.81, a move that would swipe around $6 billion from its market value.

It’s the sort of slide you might associate with a financial faceplant – missed quarterly earnings, soft guidance, or a warning of such, for example. That’s where Workday has come a cropper.

At its annual analyst day (27 Sep), there was lots of talk about AI (artificial intelligence) – announcing an AI marketplace designed to help customers easily discover and deploy AI and machine learning solutions, long-run growth opportunities and impressive projected compound growth annual rates (up to 26% revenue between second quarter 2022 and Q2 2024).

LONG-TERM GROWTH GETS A HAIRCUT

But there was also a shock in store for analysts after the company lowered long-term growth guidance and cash flow margins projections.

Workday has now set a target of between 17% to 19% for annual subscription revenue growth through to fiscal 2027, down from 20%-plus previously. Its operating cash flow margin target was top sliced from 35% to 30%.

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This may not seem significant enough to wipe off $6 billion of shareholder value yet such things matter enormously, especially when your stock is already trading on a current year price to earnings multiple of nearly 40-times (before today’s implied share price fall), almost twice that of the S&P 500’s 20-times average or the Nasdaq 100’s PE of 30.  

How analysts will react with their forecasts we will have to wait a see.

 

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Issue Date: 28 Sep 2023