Workday's fourth quarter and outlook for the year ahead highlighted the company's momentum and how it is increasingly leveraging its human capital management expertise into financials.
A day after Workday's fourth quarter results, analysts and Wall Street were gushing. Skeptics can question whether Workday can maintain its growth rates, but it's hard to argue with the results. Now Workday is planning to bolster search and machine learning on its platform via the acquisition of Identified and optimism abounds.
Workday reported a fourth quarter net loss of $56 million, or 32 cents a share, on revenue of $141.87 million, up 74 percent from a year ago. The non-GAAP loss for the quarter was 13 cents a share, three cents ahead of expectations.
For fiscal 2014, Workday reported a net loss of $1.01 a share on revenue of $468.9 million, up 71 percent from a year ago.
The big question for Workday is whether stepped up competition from Oracle and SAP can thwart its growth rates. The short answer is probably not. Workday's financial product is maturing and large enterprises are eyeing the company as a real option. Workday has already been landing large enterprise deals for HR.
On a conference call with analysts, Aneel Bhusri, co-CEO of Workday, stopped short of saying financials were at an inflection point, but did note some real momentum.
Over the past year, we experienced a significant amount of growth, with the addition of 200 customers, bringing year-end numbers to over 600.
In particular, we have experienced increased adoption of our financials product, ending the fiscal year with more than 70 customers.
The fourth quarter was the second quarter in a row that we experienced double-digit new customer growth in financials. We attribute much of this momentum to market readiness and product maturity, and expect this trend to continue.
We had good success with financials. That's where the early adopters are. And we're beginning to get really good wins with our financial products in the financial services category.
Analysts asked about SAP and Oracle starting to knock Workday financials, but Bhusri said Workday hasn't seen those two giants in the field. In HR, SAP and Oracle are always competing with Workday.
As for the outlook, Workday projected first quarter revenue to be between $148 million and $153 million, up 61 percent to 67 percent from a year ago. Total revenue for fiscal 2015 will be between $710 million and $740 million.
Workday is built on the theory that once it's in an account it's likely to stay there awhile. That reality is what makes Workday so dangerous to SAP and Oracle. The acquisition of Identified fits into that equation because Workday is looking to add value-add analytics on top of its user experience and platform. Bhusri said:
While we are not continuing the Identified offering in its current form, we intend to build this technology into the Workday platform to further enhance our search capabilities, and to accelerate the delivery of predictive analytics and machine-learning capabilities.
If the last five or seven years were about the emergence of the cloud as a new platform, for us I think the next five to seven years are about the analytics that can get built on top of that cloud platform. You're going to continue to see investment, whether it's our own Big Data Analytics offerings that we've rolled out, or acquisitions like Identified.
Identified had some unique technologies in search and machine learning capabilities that we are going to take and build into the core Workday platform. So it won't be adjunct, it will be built into the Workday platform.
Analysts were generally upbeat about Workday's results.
Cowen analyst Peter Goldmacher said:
Business is good. The billings growth rate has normalized as the company has anniversaried its change from longer term invoicing to annual invoicing. The core is selling well as evidenced by strong (50%) growth in customer count to end the year with 600 total customers, and revenue growth rates in excess of customer growth rates suggest that deployments are getting larger indicating traction as the company sells up market.
Macquarie analyst Brad Zelnick noted:
CEO Bhusri characterized acceptance of the Financials offering as increasing momentum, but not necessarily reaching an inflection point. “More than 70 customers” have adopted the product to date, up from more than 50 last quarter. Mr. Busri refuted competitors’ claims that Financial apps are less conducive to multi-tenant cloud delivery given geographical and vertical diversity.
Pacific Crest analyst Brendan Barnicle said:
Workday is not breaking out its revenue contribution by product, but it added over 30 new customers for financials, and it is finalizing its new recruiting application as well as its big data offerings. Finally, Workday plans to offer a series of vertical applications to meet the growing demand for vertical solutions. As a result, we estimate that Workday's total addressable market could reach over $70 billion next year.