Workday has had a good week so far with shares jumping (c8% after hours and around 12% the next day) on the back of a high growth Q3 and a Q4 forecast ahead of market expectations.
Q3 revenue was up 76% yoy to $127.9m on the back of new products (e.g. financials) and new customers (50 added into Q3 taking the count to 550; the weighted average duration of contracts across the customer base is 3.4 years). Revenue was ahead of market expectations of c$117m. Workday is forecasting Q4 revenue of $133m-$138m (63%-69% growth) vs. the c$129m the market was predicting.
As a cloud pure-play in growth mode (see here), naturally costs were up. Operating expenses increased (to $118m from $83.3m) so the net loss rose (to $47.5m from $41.3m) but the operating loss was slightly narrower ($40.4m vs. $40.9m) due to higher professional services operating margins flowing from sales of the financials product. Although professional services revenue is growing strongly (up 61% due to financials customers and those taking HR and financials) and was 25% of revenue in Q3, it is not a primary revenue driver. It is geared towards customer satisfaction, and thus renewal. Workday expects partners to handle more of this work over time – I wonder if Workday will miss a margin-boosting opportunity in this area.
One of the differences between Workday and Salesforce.com is that Workday builds its own products whereas Salesforce.com is a frequent acquirer. Both are expensive expansion methods but Workday may end up with a more integrated product set, leading to better customer engagement (stickiness) and buy-in across its expanding portfolio. I’m wondering if it will result in a different cost and loss/profit profile to Salesforce.com.