Since its high valuation IPO in October 2012 (see here), the pressure has been on Workday to deliver. The Q114 results certainly did that on the revenue growth metric and although losses were higher yoy, they were lower than market expectations.
Revenue for the SaaS pure play offering HR and financial management applications increased 61% yoy to $91.6m for the period to April 30 2013, with subscription revenue up 85% to $68.4m. Losses came to $33m. The markets were expecting a loss of 18 cents per share but, excluding one-time items, Workday came in at a better level of 15 cent loss per share. This largely due to operating leverage from increased revenue.
All SaaS companies are still investing for growth and Workday is no exception so costs on all fronts rose - R&D up 67%, sales and marketing up 52, and general and admin up 64% yoy. All are set to increase further, especially as it is expanding internationally, including into the UK. Of its 450 customers, the vast majority are US-based.
One of the most telling comments during the results presentation came from CFO Mark Peek who said “We’re selling enterprise applications and so these cycles can last numbers of quarters and years.” This sums up the challenge facing SaaS providers targeting the back office and more complex transactional area. As we have previously said, long sales cycles associated with back office sales could moderate SaaS growth rates. The market is still more than buoyant, but as Workday demonstrates, sales cycles will get longer now that providers are turning to the more complex enterprise application areas.