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Workday (WDAY -2%) clocks out today despite topping earnings estimates in Q4 (Jan) and growing revs in-line with consensus. The troubling metric from the ERP and HCM software developer's Q4 report was its reaffirmed FY25 subscription revenue guidance, especially after shares reached all-time highs yesterday. With numerous dimensions fueling upbeat numbers, investors are a bit let down by WDAY's conservative guidance. Still, investors are keeping shares at levels from just two weeks ago, underscoring general positivity over WDAY's ability to dodge macroeconomic pressures, including suppressed enterprise spending which clipped peers' recent outlooks, such as Paycom Software (PAYC) and Paylocity (PCTY).

• WDAY's top-line growth was solid, climbing by 16.8% yr/yr to $1.92 bln, helping fuel a 58.6% expansion in adjusted EPS to $1.57. Non-GAAP operating margins surged by over 500 bps yr/yr to 24%, supported by buoyant revenue growth and ongoing cost discipline, such as moderating hiring. It is also worth mentioning that WDAY's platform is highly scalable, benefiting from new customer wins and existing customer upsells.
  • Meanwhile, subscription revenue jumped 22% yr/yr to $1.50 bln, ending the year with a subscription backlog of $16.45 bln, a 28% increase.
• Several factors are aiding WDAY's impressive ability to deliver outperformance despite a challenging economic landscape. Generative AI is a significant component. WDAY has AI tools, such as Workday Skills Cloud, which leverages AI to gain insights into organizations' skills. Also, alongside its quarterly report, WDAY announced its planned acquisition of HiredScore, a provider of AI-powered talent acquisition services.
• International markets are also keeping WDAY's quarterly financials sound. In Q4, international revenue grew 21% yr/yr to $478 mln, representing roughly a quarter of WDAY's overall sales. Management reiterated that international comprises half the company's addressable opportunity and is working diligently to capitalize on it. Early signs of success have already emerged via healthy new average contract value (ACV) growth in key EMEA markets and strong ACV growth in Japan.
• Organizations also depend on WDAY's products to retain talent and drive productivity enhancements. By helping businesses streamline operations, WDAY showcases how its products are mission-critical, keeping switching costs elevated and forming an economic moat.
• Nevertheless, investors are disappointed by WDAY's FY25 subscription revenue forecast of $7.725-7.775 bln, unchanged from last quarter despite upbeat numbers in Q4.

With shares climbing over +50% since October, WDAY needed to outperform meaningfully in Q4. While it did just that in many respects, its reiterated guidance is proving insufficient to keep shares trending higher today. Still, we do not view today's slight pullback as indicative of weak performance or structural cracks. In fact, WDAY's Q4 report again demonstrated its ability to outperform regardless of the economic environment, keeping its position at the top of its class.