Workday's Q2: Momentum in HCM likely to continue

Workday's biggest obstacle to competing with Oracle and SAP may be distribution among systems integrators.
Written by Larry Dignan, Contributor

Workday is expected to report solid second quarter results on Tuesday as its human capital management software continues to gather momentum and CFOs await more functionality and customer wins on the company's financial applications.

The company is expected to report a second quarter non-GAAP loss of 18 cents a share on revenue of $100.5 million. Analysts say that Workday had a strong quarter and most expect revenue to exceed expectations.

JMP Securities analyst Patrick Walravens said Workday's partners indicated that the quarter was strong. Walravens is betting that Workday can capture 5 percent of the ERP market by 2017.

Also: Workday in the cloud's new world order: What's next?

Walravens quoted partners who noted that Workday is doing well in North America, but sales cycles are 12 to 15 months and the company's biggest issue is that it doesn't have enough people to process orders and help implement. Oracle is also being more aggressive on pricing against Workday.

Morgan Stanley analyst Jennifer Swanson Lowe said in a research note:

Legacy ERP providers like Oracle and SAP posted mixed Q2 results, but we believe that secular demand for SaaS solutions remains healthy, and Workday should benefit as a share gainer.

Most analysts seem to be focused on the Workday vs. Oracle battle. A much ballyhooed Oracle-Salesforce partnership noted that Oracle HCM was part of the deal. Lowe noted the following chart:



Indeed, Workday can grow for years just taking some share from the likes of Oracle and SAP. Jason Maynard, an analyst at Wells Fargo, also noted that Workday's biggest challenge is distribution, but systems integrators may be coming to the rescue.

We have argued that Workday’s biggest impediment to further growth is distribution. We believe the company has been successfully lining up additional systems integrator partners to rectify that problem. We have heard of many current partners that are expanding their organizations to satisfy increased customer demand. Leading global SI partners of Workday include: Accenture, IBM, PWC, and Wipro.


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