Key Highlights
- Workday delivered Q2 adjusted earnings of $2.75 per share, surpassing the consensus forecast of $2.61, with total revenue reaching $2.65 billion.
- Subscription-based revenue climbed to $2.47 billion, marking a 13.9% year-over-year increase and exceeding internal projections.
- Artificial intelligence solutions now represent over 25% of new annual contract value, with more than 5,500 clients deploying at least one AI agent.
- The company increased its full fiscal year 2027 subscription revenue forecast to $9.94B-$9.95B, representing 13% growth.
- Workday bought back 9.8 million shares worth $1.3 billion and secured board approval for an additional $4 billion share repurchase program.
Workday (WDAY) delivered stronger-than-anticipated second-quarter results, exceeding Wall Street’s earnings and revenue projections. The stock gained 1.5% to close at $193.57 during Thursday’s regular session and continued climbing with a 1% increase in Friday’s premarket activity.
The enterprise software company reported adjusted earnings of $2.75 per share, comfortably beating the Street’s $2.61 projection. Total revenue increased 12.8% from the prior year to $2.65 billion, marginally topping the $2.64 billion analyst consensus.
Subscription-based revenue totaled $2.47 billion, reflecting a 13.9% year-over-year jump. This figure exceeded Workday’s internal forecast of approximately $2.455 billion.
The 12-month subscription revenue backlog expanded 14.2% to reach $9.03 billion. Meanwhile, the total subscription backlog increased 8% year over year to $27.4 billion.
Adjusted operating income climbed to $824 million, representing 31.1% of revenue, compared with $680 million, or 29%, during the same period last year.
Adjusted net income grew to $677 million, up from $598 million in the year-ago quarter.
AI Adoption Accelerating
Artificial intelligence is playing an increasingly significant role in Workday’s growth strategy. The company reported that AI-related features contributed more than 25% of new annual contract value during the quarter.
The customer base utilizing at least one of Workday’s native AI agents has expanded to over 5,500, representing a sequential increase of more than 35% from the previous quarter.
Co-founder and CEO Aneel Bhusri characterized the quarter as strong, highlighting AI as a crucial catalyst for new contract value. CFO Zane Rowe echoed this sentiment, describing the performance as evidence of “continued momentum,” with AI becoming a “strategic driver of customer expansion.”
Forward Outlook and Capital Returns
Looking ahead to Q3, Workday projected subscription revenue of $2.515 billion, representing 12% growth, with an adjusted operating margin of 30%. This guidance slightly exceeded the analyst consensus of $2.51 billion.
For the complete fiscal year 2027, Workday elevated the bottom end of its subscription revenue guidance, establishing a new range of $9.94 billion to $9.95 billion, reflecting 13% annual growth. This represents a minor adjustment from the previous range of $9.925 billion to $9.95 billion.
Workday also demonstrated its commitment to shareholder returns, repurchasing 9.8 million shares at a total cost of $1.3 billion throughout the quarter. The board subsequently approved an additional $4 billion share repurchase authorization with no expiration date.
The company reported $3.4 billion in cash, cash equivalents, and marketable securities at quarter-end.
However, some analysts remain cautious. Bank of America maintained its Neutral rating with a $205 price target, noting that while AI initiatives are “gaining traction but reacceleration is still elusive.” The firm reduced its estimates to account for a more moderate long-term growth outlook.
Workday shares have declined 9.9% year-to-date and are down 15.3% over the trailing 12 months. In early August, the stock experienced a rally on speculation regarding a potential acquisition by private equity firm Silver Lake, though no transaction has been confirmed.
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