Workday - $WDAY - Earnings Analysis: Strong subscription revenue growth and backlog provide revenue visibility.

Business Model

Workday generates revenue primarily through subscription services and professional services related to its cloud-based applications for human capital management (HCM), enterprise resource planning (ERP), and financial management.

Revenue Sources

• Subscription services: Recurring revenue from customers using Workday's cloud applications.
• Professional services: Revenue from implementation, consulting, and training services.

Income Statement Analysis

• Total revenues increased by 15.0% year-over-year, driven by growth in subscription revenues.
• Operating income decreased by 5.1% year-over-year, impacted by restructuring expenses.
• Net income significantly decreased due to restructuring expenses in Q4 2025 and a one-time benefit from a valuation allowance release in Q4 2024.

Balance Sheet Analysis

• Total assets increased by 9.3% year-over-year, reflecting overall business growth.
• Total stockholders' equity increased by 11.8% year-over-year, driven by increased retained earnings.
• Total liabilities increased by 6.8% year-over-year.

Cash Flow Analysis

• Net cash provided by operating activities increased by 11.7% year-over-year, reflecting strong operational performance.
• Net cash used in investing activities increased, driven by purchases of marketable securities.
• Net cash used in financing activities increased, driven by repurchases of common stock.
• Cash, cash equivalents, and restricted cash decreased year over year.

Capital Allocation

Workday repurchased approximately 2.9 million shares of Class A common stock for $700 million as part of its share repurchase programs. Management is focused on investing to support long-term growth, while driving efficiencies in the business. They plan to accelerate the pace of AI investment across the platform and continue to drive efficiencies and look for improvements in operating the business at scale.

Management Commentary

Our fourth quarter performance is a testament to Workday’s value proposition as organizations seek to boost productivity, run more efficiently, and deliver incredible employee experiences.

Our fourth quarter results were driven by solid performance across key growth areas of the business, including continued momentum with our full suite and financials products, growing demand for our AI SKUs, and strong execution across industry verticals.

We continue to expect fiscal 2026 subscription revenue of $8.800 billion, representing 14% growth, and we now expect fiscal 2026 non-GAAP operating margin of approximately 28.0%.

Overall Sentiment: Positive. Management expresses confidence in Workday's value proposition, growth prospects, and strategic investments in AI and efficiency improvements.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.