According to a recent Research and Markets report, the global SaaS market is estimated at 13% CAGR to $220.21 billion by 2022 from $134.44 billion in 2018. SaaS-based financial and human resources enterprise services provider Workday (NASDAQ: WDAY) recently reported its fourth quarter results that continued to benefit from this growth.
For the quarter, Workday revenues grew 24% over the year to $976.3 million, ahead of the Street’s forecast of $964.5 million. Adjusted earnings grew 22% over the year to $0.50 per share and were also ahead of the market’s forecast of $0.40 per share.
By segment, Subscription services revenues grew 25% to $840 million, ahead of the market’s forecast of $830 million. Professional services revenues grew 18% over the year to $136.6 million.
Workday ended the year with revenues growing 28.5% to $3.63 billion driven by 30% growth in subscription revenues. Net loss was $2.12 per share. On an adjusted basis, net income was $1.88 per share compared with $1.36 last year.
For the first quarter, Workday expects subscription revenues of $873-$875 million and professional services revenues at $137 million. It expects to end 2020 with revenues of $3.755-$3.770 billion. The market was looking for revenues of $1 billion and EPS of $0.49 for the quarter and revenues of $4.35 billion with an EPS of $2.17 for the year.
Workday’s PaaS Focus
Over the past few quarters, Workday has been focusing on growth through diversifying beyond the traditional HCM market into other enterprise services such as financial management and procure-to-pay. The results of the push can be seen in the number of customers that Workday continues to grow each quarter. Last quarter, it ended with over 3,200 customers. Within the HCM space, 45% of its customers were Fortune 500 players. It added names like Keybanc, Beth Israel Lahey Health, Dun & Bradstreet, and West Virginia United Health System for its financial software solution.
One of the key levers for growth that Workday has been using is its PaaS strategy. Workday opened its platform to third party developers in 2018. It provided developers access to its platform so that organizations could leverage Workday’s data models and use custom apps and extensions from Workday.
Today, Workday’s platform provides third party apps that integrate into its HCM, Financials, Learning, and the Adaptive Insights tools. Workday has its own Product Management Team that builds integrations to services such as Adobe Sign, ADP Check Printing, ADP Tax Filing and several other services. It also runs a Software Partner Program that has been set up to provide third party solution providers with the ability to build a knowledge foundation with Workday from a Business Interaction and Technical perspective.
Its Partners can engage extensively with Workday’s joint-customers to help identify and focus on the core uses cases that can help drive value from combined solutions and deliver higher process efficiencies. Within payroll processing alone, for instance, Workday’s partners have built integrations to process payroll in more than 40 countries.
While Workday realizes the importance of the developers on its platform, it does not disclose detailed statistics about this high growth area. Workday is surely following the PaaS strategy that all SaaS companies need, but given the importance of the segment, it should start disclosing more details about its PaaS initiative.
Its stock is trading at $172.89 with a market capitalization of $39.76 billion. It hit a 52-week high of $226.83 in July last year and a 52-week low of $151.06 in October last year.
This segment is a part in the series : Cloud Stocks