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Workday (WDAY +7%) shares are working overtime today, springing higher following another round of solid top and bottom-line upside in Q4 (Jan). While WDAY's Q1 (Apr) and FY26 guidance for subscription revenue, which comprises over 90% of total annual revenue, indicated further signs of slowing growth, excitement over several AI-related developments and CEO Carl Eschenbach's energetic remarks surrounding the federal government's tilt toward efficiency are mounting, eclipsing growth concerns.

• As many have come to expect from WDAY, given its strong track record, the company surpassed adjusted EPS estimates by double-digits for the tenth consecutive quarter in Q4, expanding its bottom line by 22% yr/yr to $1.92. Underpinning the sizeable earnings beat was WDAY's non-GAAP operating margins swelling by 250 bps yr/yr to 26.4%.
• Revenue growth of 15% yr/yr to $2.21 bln also supported a robust bottom line. Subscription revenue ticked 15.9% higher to $2.04 bln, exceeding WDAYs $2.025 bln forecast. Growth was broad-based, growing similarly across the U.S. and overseas. Encouragingly, despite ongoing macroeconomic headwinds, including inflation and elevated deal scrutiny, in the EMEA region, WDAY noted that its two largest markets in the area, the U.K. and Germany, posted their strongest quarter of FY25.
• AI has been front and center in every conversation WDAY's CEO has with customers, driving increasing AI-related demand during Q4. Mr. Eschenbach commented that companies are looking to move beyond incremental productivity gains, seeking a return on investment that helps drive meaningful growth. Like Q3, WDAY observed 30% of its customer expansions involving at least one of its AI SKUs in Q4, such as Extend Pro, one of its fastest-growing products, with new annual contract value (ACV) more than doubling sequentially.
  • WDAY stated that its approach to AI has been integrating the technology into its core offering instead of rushing to charge for early AI-related features. Following its strategy, WDAY now believes AI has evolved to a point necessary to support new monetization opportunities fueling WDAY's long-term growth.
• Looking ahead, WDAY projected Q1 and FY6 subscription revenue growth of +13% and +14%, respectively, representing further slowdowns from Q4 and FY25. However, WDAY is optimistic about the Department of Government Efficiency (DOGE), noting that it has considerable potential to drive efficiency in the government, where WDAY commands a sizeable presence. Last year, WDAY laid the groundwork with a couple of significant wins at the Department of Energy and DIA, providing a springboard in the federal market moving forward.

Uncertainty still lingers across the macroeconomic landscape, keeping businesses on their toes as they scrutinize their budgets. However, WDAY is positioning itself for many long-term opportunities, such as investments in AI and focusing on growing its government-related revenue. This gives it a sturdy foundation to accelerate growth once broader demand conditions turn around.