Workday planning to go more deeply after procurement, which is seen as largely dominated by Coupa Software
Shares of Workday (WDAY) are sliding today following the company's analyst day, held yesterday. Stifel analyst Brad Reback was one of several analysts to cut his price target on the shares on Wednesday, saying the event reinforced his view that Wall Street’s subscription revenue growth estimates are too high for 2021 and 2022.
WORKDAY RISING 2019: JMP Securities analyst Patrick Walravens highlighted five key takeaways from Workday's analyst day event in a research note to investors, namely the company's guiding to the high end of its guidance range for total revenue and subscription revenue; its expanding customer base; the fact that its largest near-term add-on opportunities are in Financials, Planning, Prism analytics, and Learning products; the CEO's statement that he views Procurement and Spend Management as an important category, citing the success that Coupa Software (COUP) has had; and the company's success moving its Financial Management products upstream to larger enterprise customers.
During the event, Workday CEO Aneel Bhusri said that, "for the first time, we're breaking out procurement. Procurement spend management has been an important category for Workday. And the reason we're breaking out is you should expect to see more investment and more focus on this area. I know it's an important area for many of you, 650 customers, and we hope to continue to grow that number. […] For financial management and procurement, we got to a point where we felt really good about the base of the functionality we had in the systems. And what we want to do now is moving to global, more global and more industries."
TARGETS CUT: After attending the keynote and analyst day at Workday Rising 2019, Stifel analyst Brad Reback said he sees the Human Capital Management, or HCM, opportunity moderating as the company scales, making HCM up-sell and cross-sell more important. Meanwhile, the Financials segment is growing 50%, but off a small base and he does not see an inflection in the near-term. Following the event, he lowered his 2021 and 2022 subscription revenue estimates and trimmed his price target on Workday shares to $180 from $210. While Reback acknowledged that Workday is executing well and has a large opportunity to drive revenue growth, he argued that shares should trade in-line with peers, leading him to keep a Hold rating on the stock. Reback also noted that Workday signaled interest during the event to more deeply go after procurement, which he said is largely dominated by Coupa Software.
Deutsche Bank analyst Karl Keirstead also cut his price target for Workday to $185 from $200 following the company's analyst event. The analyst noted that Workday shares were under pressure due to comments about slowing core human capital management growth, some deal delays due to the macro environment and a "non-committal" view of fiscal 2021 margin improvement. Keirstead reiterated a Hold rating on the shares.
Meanwhile, RBC Capital analyst Alex Zukin lowered his price target for Workday to $212 from $225, but reiterated an Outperform rating on the stock. The analyst noted that the company's growth plans look "durable" despite the slowing penetration into large accounts, adding that while sales cycles are lengthening, its win rates remain "steady." Zukin attributed the reduced price target on Workday to the stock's "consistent discount" relative to his "High Efficiency comp group."
PRICE ACTION: In morning trading, shares of Workday have dropped nearly 12% to $159.70.