Workday Sales Beat Estimates on Cloud-Computing Demand

Workday Inc., a maker of Web-based human-resources software, reported third-quarter revenue that beat analysts’ estimates as more companies switched to its cloud-computing tools to manage their workforces.

In its first quarterly report since becoming a publicly traded company, Workday had a loss excluding some items of 39 cents a share, the company said in a statement yesterday. Analysts predicted a loss of 49 cents, the average of estimates compiled by Bloomberg. Sales in the quarter ended Oct. 31 doubled to $72.6 million, compared with projections for $64 million.

Workday, founded in 2005 by co-Chief Executive Officers Dave Duffield and Aneel Bhusri, makes applications to help corporations manage human resources and financial records. As large companies adopt more online tools, Workday is drawing customers away from enterprise software companies such as Oracle Corp. and SAP AG. Those two, along with Inc., also make Web-based software for businesses.

“The vast majority of business software is 5 to 10 years old, and corporate customers are making the decision to upgrade,” Richard Davis, an analyst at Canaccord Genuity Inc., said in an interview. “Oracle and SAP are not going away. They’re just not going to have 100 percent market share between them.”

Shares of Pleasanton, California-based Workday fell 1.4 percent to $52.45 at 10:11 a.m. in New York. Through yesterday’s close, the stock had gained 90 percent since its initial public offering in October.

Software Development

Workday is trading at a 14 percent premium to the Standard & Poor’s 500 Information Technology Index on a price-to-earnings basis. The software maker raised $637 million in its Oct. 11 IPO, after twice raising its price. Workday sold 22.8 million shares for $28 apiece.

Mark Peek, Workday’s chief financial officer, said the company would keep investing to develop software. Research and development expenses were $28.1 million in the third quarter, up 71 percent from a year earlier.

“We continue to invest in our product development as we strengthen and extend our suite of applications, particularly in financial management,” Peek said on a conference call yesterday with analysts.

In the latest quarter, Workday announced that it will introduce new applications to analyze corporate data and for recruiting, which will debut by mid-2014.

The company reported a net loss of $41.3 million, which was smaller than the $46.6 million loss expected by analysts. The loss a year earlier was $19.7 million.

Big Wins

Revenue for the fourth quarter is expected to be $75 million to $79 million, the company said in the statement. That compares with $70.5 million projected, on average, by analysts.

Bhusri said clients were looking for at other software options whenever they were faced with an upgrade to an existing software tool.

“The number one trigger is customers facing an upgrade of a legacy system,” Bhusri said on yesterday’s conference call with analysts.

During the latest quarter, Workday said it won new clients such as Johnson Controls Inc., Yale University and J.B. Hunt Transport Services Inc.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE