Investors had high expectations for Workday, and it delivered.
The Pleasanton, Calif.-based company, which sells cloud-based enterprise resource planning ("ERP") software, reported first quarter 2014 losses per share of $0.15 on revenue of $91.6 million, handily beating expectations of $0.18 losses per share on revenue of $87 million.
Shares (WDAY) were up slightly in after-hours trading.
That's a total revenue increase of 61 percent over the same period a year ago. Subscription revenues were $68.4 million, an increase of 85 percent from same period a year ago.
More numbers to know for the quarter ended April 30, 2013:
- Operating loss, non-GAAP: $24.5 million (same period last year: $18.5 million)
- Operating cash flows: $17.3 million
- Free cash flows: $15.3 million
- Cash and equivalents: $805.8 million
Chief financial officer Mark Peek said he was "very pleased" with the quarter. Co-founder and co-CEO Aneel Bhusri said the company is seeing "increased customer demand" for its wares.
Workday offered Q2 guidance of revenues between $97 million and $101 million, for growth of 55 to 61 percent. It also predicted that it would end the fiscal year with revenues between $425 million and $440 million, representing growth of between 75 and 80 percent.
The company directly competes with SAP and Oracle, and has managed to gain a significant lead over them by embracing software-as-a-service delivery of its payroll, financial management and human capital management software, rather than the on-premise approach on which those more established companies built their names. Workday has spent freely on research and development in pursuit of mobility and big data opportunities.
Workday made its initial public offering in October 2012, and has racked up losses ever since, even as the value of its shares has more than doubled, from $28 to $68. The company continues to indicate to investors that it's playing for the long term, and today's results indicate that it's headed in the right direction.
JPMorgan analyst Mark Murphy wrote this week in a note to investors:
We spoke with a couple of contacts in the Workday ecosystem and walk away with consistent conviction in the company's multi-year growth opportunity. The most important feedback is that WDAY is outpacing the entire HR industry with its pace of product development. A key partner stated that he has never seen one product stay ahead of the market and with less competition for as long as Workday has. The rapid pace of development causes our contacts to believe that WDAY will eventually close the functionality gap with software mega vendors, even in Financials.
They seem to agree: last month, Lone Pine Capital significantly increased its share of ownership of Workday to 9.35 percent, making the hedge fund its fifth-largest shareholder.
On the subsequent investor's call, Bhusri said that Workday now has 450 customers and is engaged in "heavy investment in mobile technologies." He also said that the financials market "dwarfs" the business intelligence and recruiting markets, and that BI was especially hard to predict because "customers are still understanding what big data is."
Peek focused on the value of the company's escalating subscriptions over the long run. "Once we win a customer, we keep a customer for years beyond the initial subscription period," he said.
Though the company is "mindful of the challenging macroeconomic environment and the muted [estimates] on IT spending," Peek said that Workday is focused on "market expansion, continued product innovation and growth" beyond its 1,950 employees.
"We believe that continued investment in our applications will be a key driver for growth," he said.
"The world is moving to the cloud, there's no doubt about it," Bhusri added. "We're the youngest vendor with the most mature solution."