Workday Surges in First Day of Trading After IPO

Workday Surges in Trading Debut After Pricing IPO Above Range
Dave Duffield, left, and Aneel Bhusri, both co-founders and co-chief executive officers of Workday Inc., pose for a photo at company headquarters in Pleasanton, California. Photographer: Tony Avelar/Bloomberg

Workday Inc., a maker of Web-based human-resources programs, jumped 74 percent in its trading debut after raising $637 million in its initial public offering, pricing the shares above an increased range.

The shares advanced to $48.69 in New York, for a valuation of $7.8 billion. They earlier reached a high of $51.37. Yesterday Workday sold 22.8 million shares for $28 each, after boosting the price range earlier this week to $24 to $26. The IPO was the biggest technology offering since Facebook Inc. went public in May, raising $16 billion.

With today’s surge, Workday is valued at 39 times revenue over the past 12 months. That compares with a price-to-sales ratio of 8 for Inc. and 23 for ServiceNow Inc., which both deliver cloud-based software.

Workday was founded in 2005 by co-Chief Executive Officers Dave Duffield and Aneel Bhusri, both former top executives at human-resources software pioneer PeopleSoft Inc. They sold the company to Oracle Corp. that same year for more than $10 billion.

“Investors are betting that lightning will strike twice for Duffield,” said Sam Hamadeh, CEO of PrivCo, a New York-based firm that tracks private companies. “It’s definitely worth a premium, but the multiple is far higher than its peers.”

Revenue at Workday doubled in the second quarter to $62.7 million. The company spent 85 percent of that on research, development, sales and marketing, leading to wider net loss of $26.9 million from a $20.5 million loss a year earlier.

Bigger Clients

Workday’s software, accessed via Web browsers, tablets and smartphones, is used by more than 340 customers, which are choosing the cloud-based model over older systems tied to single machines. Workday’s share of the $15 billion human resource software market could increase more than fivefold in the next three to five years, Mark Murphy, an analyst at Piper Jaffray & Co., estimated in a report.

“Workday is emerging as a force to be reckoned with,” Murphy wrote.

Murphy’s analysis was based on a survey of 125 managers of human resources systems. He predicts Pleasanton, California-based Workday will take sales from companies including Automatic Data Processing Inc., Lawson Software Inc. and Ceridian Corp. The company already has replaced Oracle and SAP AG at businesses including Flextronics International Ltd., Kimberly-Clark Corp., Sun Life Financial Inc. and Lenovo Group Ltd.

Morgan Stanley and Goldman Sachs Group Inc. managed the offering. The shares, representing 14 percent of the stock outstanding after the IPO, are listed on the New York Stock Exchange under the ticker WDAY.

Based on Workday’s share price and wealth that Duffield accumulated from PeopleSoft, he is now worth about $4.5 billion. Greylock Partners, a Menlo Park, California-based venture firm, was the top outside investor in Workday with an 11 percent stake and didn’t plan to sell shares in the IPO, according to the prospectus. New Enterprise Associates planned to keep its 10 percent stake.

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