Can WDAY Stock Benefit From Healthy Subscription Revenue Growth?

Workday, Inc. (WDAY - Free Report) has recently reported impressive Subscription revenues in its third-quarter fiscal 2025 results, which highlight the robustness of its customer relationships across various sectors and the increasing influence of its artificial intelligence (AI) solutions. As more businesses opt for the Workday platform, this trend is anticipated to continue.

During the third quarter, Subscription services revenues reached $1.96 billion, a significant increase from $1.69 billion in the same period last year. By the end of the fiscal third quarter, Workday also reported a 12-month subscription revenue backlog of $6.98 billion, reflecting a year-over-year increase of 15.3% due primarily to enhanced contract renewals. Overall, the total subscription revenue backlog rose by 20.3% year over year, reaching $22.19 billion.

Given its expanding market share, commitment to innovation, and optimized operations, Workday is optimistic about maintaining steady growth in its Subscription business in the near future. For the fourth quarter of fiscal 2025, the company expects Subscription services revenues to reach $2.025 billion, marking a 15% increase from the previous year. For the entire fiscal year 2025, management forecasts Subscription revenues to total $7.703 billion, indicating a growth rate of 17% year over year. Additionally, for fiscal 2026, Subscription revenue is projected to grow 14%, reaching $8.8 billion.

Key Growth Drivers for WDAY

The continued rise in Workday’s revenues can be attributed to the strong demand for its Human Capital Management (HCM) and financial management solutions. The company’s cloud-based business model, along with an expanding product range, serves as primary catalysts for this growth. Additionally, the increasing significance of offerings like Workday Prism Analytics and Adaptive Insights in business planning is expected to drive further expansion. With its broadening product portfolio, Workday is well-positioned for sustained growth.

The growth momentum of Workday’s HCM suite is particularly notable, as many organizations migrate to cloud solutions. A steady influx of customers highlights high satisfaction levels among current users, which is advantageous for the company’s long-term strategy. Furthermore, Workday is enhancing its presence in international markets, spurred by an uptick in digital transformation initiatives in Finance and HR sectors.

Workday is also diversifying its portfolio beyond its core HCM solutions, expanding into the financial sector and adapting its products for a variety of industries such as education, public services, and financial services. This strategic direction has led to favorable contract renewals and a growing customer base as organizations look to consolidate spending and enhance operational efficiency.

Will This Aid WDAY?

With a promising outlook, Workday is confident about its growth trajectory for the remainder of fiscal 2025 and beyond. The company plans to focus on increased investment in key industries and innovation initiatives to broaden its influence within the partner ecosystem. These efforts are expected to result in robust top-line growth attributed to its Subscription business.

Workday possesses a long-term earnings growth forecast of 21% and has achieved an average earnings surprise of 9.3% over the past four quarters. With the demand across its suite bolstered by a flexible business model and strong cash flow, the stock shows potential for further upward movement.

WDAY’s Zacks Rank

Currently, Workday holds a Zacks Rank of #2 (Buy), suggesting favorable investment conditions. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Key Picks

InterDigital, Inc. (IDCC - Free Report) has a Zacks Rank of 1 and carries a long-term growth expectation of 17.44%. The company is recognized for its advancements in mobile technologies that enable seamless wireless communications. It designs a wide array of technology solutions for both digital cellular and wireless 3G, 4G, and IEEE 802-related products and networks.

Arista Networks, Inc. (ANET - Free Report) also holds a Zacks Rank of #2 and stands to benefit from considerable momentum and diversification across its main sectors and product lines. The company promotes a software-driven, data-centric approach to assist clients in developing their cloud architecture and improving their cloud experiences. Arista has reported an average earnings surprise of 14.8% in the last four quarters, positioning it for solid growth in the data-driven cloud networking market.

Ericsson (ERIC - Free Report) is currently ranked #2 and has recently posted a remarkable earnings surprise of 22.22%. As a leader in telecom services and communication networks, Ericsson is also expanding into ICT (information and communications technology) solutions.

Workday, Subscription, Growth