Workday’s Q2 results followed form for a SaaS pure play with revenue ahead of expectations and losses climbing alongside. The HR specialist (who is now moving into financials) ended Q2 with revenue up an impressive 72% to $107.6m, which was up on its own guidance of $101m and market expectations of $100.5m. Subscription revenue was close to doubling with a 92% increase to $81m, while related professional services revenue was up 29% to $26.4m. There is a lot of scope for Workday to build this part of the business. It is unlikely to be the top priority for some time yet but is a valuable asset to have in the wings.
Inevitably losses increased – the net loss was $36m and the operating loss rose from $26.4m to $32.3m. Costs soared 57% to $139.8m. Within this R&D costs were up 75% - the company is building new finance and accounts capabilities. Sales and marketing costs were up 49%. The company is expanding internationally but most of its business (c80%) is still in the US. All the effort has taken the customer base to 500+. This is a small compared to SAP and Oracle but it is taking business and it is a base to grow on particularly as its financial and accountancy offerings roll out. It is looking at long lead times however - Workday Payroll for the UK is due in 2015 for example.
The news that Q3 billings are likely to be flat due to macroeconomic and muted expectations for IT spending cast a brief shadow but does not detract from the overall progress, and Q3 revenue guidance is in the $115m to $118m range, which would be 58% to 62% up yoy. The back office is a harder and slower sales proposition than the front office (see here) but the rewards have the potential to be higher and that is what Workday is working towards. Salesforce.com, who is also expanding into the back office with its HR services, is due to report later this week so there could be some interesting comparisons.