Workday Expects FY26 GAAP Operating Margin to Lag Non-GAAP by 24-25 Points
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 4d ago
0mins
Should l Buy WDAY?
Source: seekingalpha
- Margin Expectations: Workday (WDAY) anticipates that its FY26 Q4 GAAP operating margin will trail non-GAAP by 24-25 percentage points, with the full-year GAAP margin lagging by 22-23 points, indicating financial pressure that may affect investor confidence.
- Restructuring Plans: The company announced reorganizations in FY27 that will eliminate approximately 2% of its workforce, primarily in non-revenue-generating roles, aiming to optimize resource allocation to address market challenges, which could lead to short-term morale issues among employees.
- Financial Impact: Workday estimates incurring around $135 million in charges, including approximately $40 million in cash expenditures for severance and employee benefits, and $15 million in non-cash stock-based compensation, which will significantly impact FY26 Q4 financial statements.
- Hiring Strategy: Despite layoffs, Workday plans to continue hiring in key strategic areas and locations throughout FY27, particularly in revenue-generating sectors, demonstrating the company's confidence in capturing market opportunities for future growth.
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Analyst Views on WDAY
Wall Street analysts forecast WDAY stock price to rise over the next 12 months. According to Wall Street analysts, the average 1-year price target for WDAY is 275.19 USD with a low forecast of 235.00 USD and a high forecast of 325.00 USD. However, analyst price targets are subjective and often lag stock prices, so investors should focus on the objective reasons behind analyst rating changes, which better reflect the company's fundamentals.
31 Analyst Rating
22 Buy
9 Hold
0 Sell
Moderate Buy
Current: 158.760
Low
235.00
Averages
275.19
High
325.00
Current: 158.760
Low
235.00
Averages
275.19
High
325.00
About WDAY
Workday, Inc. is a provider of an artificial intelligence (AI) platform to help organizations manage their people, money, and agents. The Company provides over 11,000 organizations with cloud solutions powered by AI to help solve business challenges, including supporting and empowering their workforce, managing their finances and spending in an ever-changing environment, and planning for the unexpected. It offers Financial Management, Spend Management, Human Capital Management (HCM), Planning, and Analytics applications. The Company sells its solutions worldwide primarily through direct sales. It also offers professional services, both directly and through its Workday Services Partners, to help customers deploy its solutions. It offers businesses flexible solutions to help them adapt to their industry-specific needs and respond to change. It serves various industries, including professional and business services, financial services, healthcare, education, government, and others.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- New Feature Launch: On February 3, Workday introduced the Military Skills Mapper, a feature designed to help organizations identify and hire military veterans more effectively by translating military backgrounds into civilian-equivalent skills, enhancing employers' understanding of veterans' technical expertise.
- Rating Adjustment: Piper Sandler adjusted Workday's price target from $235 to $200 on February 2 while maintaining a Neutral rating, indicating continued pessimism around the software industry and recommending a focus on hyperscaler, consumption, and vertical sub-sectors.
- Enterprise Cloud Application Development: Workday is focused on developing enterprise cloud applications, offering human capital management, financial management, and analytics applications for educational institutions, companies, and government agencies, positioning itself for long-term growth despite competitive pressures.
See More
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- Private Credit Sector: The emergence of private credit "cockroaches" indicates a shift in the market, particularly affecting the software sector.
- Investment Opportunities: This situation may present new investment opportunities in shares of business development companies that hold the debt of these affected companies.
See More
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- Private Credit Sector: The private credit sector is facing challenges, likened to "cockroaches" emerging from the software industry.
- Opportunities in Business Development Companies: This situation may present investment opportunities in business development companies that hold the debt of affected firms.
See More
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- Market Panic Intensifies: The release of new AI tools by Anthropic has triggered a sell-off in software-as-a-service and data provider stocks, with the S&P 500 Software & Services Index dropping over 4% on Thursday and down about 20% year-to-date, indicating market concerns over traditional software business models.
- Divergent Views on AI: While Nvidia CEO Jensen Huang and Arm Holdings CEO Rene Haas argue that AI will enhance existing software tools rather than replace them, there remains a split among analysts regarding the long-term impact of AI on the software industry, with some warning that AI could compress profit margins.
- Hedge Fund Shorting Strategy: As of Wednesday, approximately $24 billion in software stocks have been shorted by hedge funds, reflecting a pessimistic outlook on the future of the software sector, although some analysts describe this panic as
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- Divergent Executive Views: Despite the market turmoil, Nvidia CEO Jensen Huang and Arm Holdings CEO Rene Haas argue that AI will not replace enterprise software but will enhance existing tools, with Haas labeling the market panic as 'micro-hysteria,' indicating a divide in industry perspectives on the long-term impact of AI.
- Hedge Fund Short Selling: As of Wednesday, approximately $24 billion in software stocks have been shorted by hedge funds, highlighting investor pessimism about the software sector's outlook, although analysts suggest that the impact of AI on software providers is likely to be short-lived, as enterprises will not easily abandon their existing investments.
- Complex Industry Outlook: Analysts warn that AI could pressure software profits and limit pricing capabilities, although key players like Oracle and ServiceNow are seen as having a sustained 'right to earn,' suggesting that the future of the software industry remains uncertain in the age of AI.
See More
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- Earnings Focus: Amazon.com Inc. (NASDAQ:AMZN) is set to report earnings after the bell, with analysts expecting $1.97 per share on revenue of $211.32 billion, which could significantly influence market sentiment depending on the results.
- Jobless Claims Insight: The latest weekly jobless claims report will be released on Thursday morning, and market participants will closely monitor this data to assess the durability of the U.S. labor market, potentially impacting the Federal Reserve's monetary policy decisions.
- Bond Yield Trends: The 10-year Treasury bond yielded 4.27%, while the two-year bond stood at 3.55%, indicating market expectations regarding interest rate policies, with the CME Group's FedWatch tool showing a 90.1% likelihood of the Federal Reserve keeping rates unchanged in March.
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