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Cloud Stocks: Analysis of Workday’s PaaS Strategy

Posted on Wednesday, Sep 9th 2020

SaaS-based enterprise services provider Workday (NASDAQ: WDAY) continues to deliver stellar results. For the recently reported quarter, the company outpaced all market expectations and its stock soared to record high levels. However, the recent market turmoil has impacted the stock.

Workday’s Financials

Workday’s second quarter revenues grew 19.4% to $1.06 billion, ahead of the Street’s forecast of $1.04 billion. Non GAAP EPS was $0.84, also ahead of the market’s forecast of $0.66. Net loss decreased to $20.01 million compared to loss of $120.7 million a year ago.

By segment, Subscription services revenues grew 23% to $931.7 million, ahead of the market’s forecast of $830 million. Professional services revenues declined 0.3% to $130.3 million.

Cash, cash equivalents, and marketable securities were $2.7 billion as of July 31, 2020.

For the third quarter, Workday expects subscription revenue of $948-$950 million and professional services revenues of $135 million. Workday increased its subscription revenue guidance for FY21 to $3.73-$3.74. It expects professional services revenue of $525 million in FY21. The market was looking for revenues of $1.085 billion for the quarter with an EPS of $0.67 and revenues of $4.262 billion for the year with an EPS of $2.51.

Workday’s Customer Traction

During the quarter, Workday announced the availability for its new solutions, Workday Help and Journeys, to help extend the power of the machine learning-driven employee experience. It also announced the availability of people analytics, which will leverage its Prism foundation and help empower HR and business leaders to make better people decisions. Additionally, Workday is continuing to help its customers with their return to work planning by providing solutions that help plan, schedule, and monitor a safe return to the workplace.

It entered into a partnership with IBM to work on a joint solution that will combine Workday’s Adaptive Planning and Workday Human Capital Management (HCM) with IBM’s technologies. The joint offering will provide the necessary employee data to offer insights into worker readiness to return to the workplace.

IBM will embed Watson AI into the solutions to help form models and applications to assist companies as they continue to navigate the aspects of returning to the workplace. Organizations will be able to model site capacity and evaluate employee roles and their eligibility for their return to the workplace. It will also assess the community risk and the readiness of the workplace, as well as identify the COVID-19 trends at each location of the workers’ residence, to help site leaders, HR leaders and workforce and workplace planners to make decisions about the re-openings of facilities.

Workday’s PaaS Strategy: Platform or API

Workday recently launched its PaaS strategy with its Extend platform that allows customers and partners to build and customize applications and extensions on top of the capabilities already delivered on Workday to meet their unique business needs.

Extend allows organizations to leverage a familiar user, administration, and reporting experience and enforce the same security controls while gaining real-time access to Workday people and financial data for additional business needs.

Workday’s PaaS Strategy: Developer Community

Workday’s platform is currently aimed at allowing organizations to build extensions and apps that can help them meet their customized business needs. For instance, Netflix has used Extend to build an app that creates an external supplier PO request extension on top of the existing Workday supplier portal to automate the majority of supplier PO requests. Similarly, Flex has built The Vehicle Registration app to enable employees to register the vehicles they drive to work. It can be used by on-site security teams to identify the owner of a car in case of an emergency. But the app is not currently open to an ISV community to build commercial applications.

Workday’s PaaS Strategy: Marketplace and Metrics

Workday does not disclose the statistics on the number of developers that are currently building on its platform. I think it should consider an ISV focused strategy that will allow it to leverage the developer ecosystem that can add more capabilities to Workday’s own platform.

Its stock is trading at $223.00 with a market capitalization of $51.1 billion. It hit a 52-week high of $248.75 in August and a 52-week low of $107.75 in March this year.

This segment is a part in the series : Cloud Stocks


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