(Bloomberg) — Workday Inc. shares jumped in extended trading, erasing earlier declines, after executives said the company will significantly increase its profitability over the next three years.
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Adjusted operating margin will reach 30% by the fiscal year ending in January 2027, Chief Financial Officer Zane Rowe said Thursday in a conference call after the software company released its quarterly results. At an event last year, Workday had said the number would be 25%. Growth in subscription revenue – which makes up the majority of Workday’s total revenue – will be about 15% in the coming fiscal years, Rowe said.
Shares rose nearly 10 percent in extended trading after closing at $231.08 in New York. The stock had previously fallen as much as 7.4 percent.
By focusing more on profits, the company has more liquid assets that it can invest strategically in growth initiatives, said CEO Carl Eschenbach during the conference call.
Workday, which makes software for business tasks such as human resources management, will save money by being selective in hiring and using artificial intelligence in its call centers and finance departments, among other things, Eschenbach said. The company is also hiring more workers in Costa Rica and India, he said.
The long-term outlook overshadowed earlier investor concerns about Workday’s quarterly earnings and full-year revenue guidance. Subscription revenue rose 17% to $1.9 billion in the fiscal second quarter, the company said in a statement. Reported revenue was in line with analysts’ average forecasts, according to data compiled by Bloomberg.
The Pleasanton, California-based company also maintained its fiscal year subscription forecast of up to $7.73 billion and raised its operating margin forecast to 25.25 percent from 25 percent. It also announced a $1 billion share buyback program.
Under Eschenbach, Workday has introduced new features and sought to expand its customer base. In July, the company announced a partnership with Salesforce Inc. to develop an AI tool that works between their platforms.
Before the results were released, analysts had pointed to the potential negative impact of job cuts at software makers such as Workday, which charge their customers per user. The company said its short-term subscription base, which is considered an indicator of business momentum, was $6.8 billion. Analysts on average had expected $6.76 billion.
The results suggest a difficult climate for user growth, said Anurag Rana, an analyst at Bloomberg Intelligence. “Companies remain in cost-cutting mode and are hiring at a below-average rate.”
Workday reported earnings (excluding some items) of $1.75 per share for the period ended July 31, compared with an average estimate of $1.64.
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