Can WDAY Stock Benefit From Healthy Subscription Revenue Growth?

Workday, Inc. (WDAY - Free Report) recently showcased impressive growth in Subscription revenues during its third-quarter fiscal 2025 results. This indicates the strength of its established customer relationships across various industries and the rising impact of its artificial intelligence (AI) innovations as more businesses opt for the Workday platform.

In the latest quarter, Subscription services revenues reached $1.96 billion, an increase from $1.69 billion in the same quarter last year. By the end of the fiscal third quarter, the 12-month subscription revenue backlog stood at $6.98 billion, reflecting a year-over-year rise of 15.3%, primarily due to increased contract renewals. Additionally, the total subscription revenue backlog expanded by 20.3% year-over-year to $22.19 billion.

With an enhanced market share, a commitment to innovation, and streamlined operations, Workday anticipates steady growth in its Subscription business in the upcoming quarters. For the fourth quarter of fiscal 2025, the company projects Subscription services revenues to reach $2.025 billion, representing a 15% year-over-year increase. For the entire fiscal year 2025, management expects Subscription revenues of $7.703 billion, indicating a growth of 17% year-over-year, while for fiscal 2026, Subscription revenues are forecasted to grow by 14% to $8.8 billion.

Key Growth Drivers for WDAY

Workday’s revenue growth continues to be driven by high demand for its Human Capital Management (HCM) and financial management solutions. The company’s cloud-based model and growing product portfolio have played a significant role in this growth. Furthermore, there is increasing interest in Workday's Prism Analytics and Adaptive Insights business planning cloud offerings. Given its expanding product lineup, Workday appears to be in a strong position for future growth.

Workday’s HCM application suite is experiencing robust growth momentum, spurred by the ongoing shift of organizations toward cloud solutions. A consistent influx of new customers indicates high levels of customer satisfaction, which is favorable for the company’s long-term business model. Additionally, Workday is making strides in international markets, driven by increased digital transformation initiatives in Finance and HR sectors, keeping pace with evolving market conditions.

The company is broadening its portfolio beyond core HCM solutions into the financial sector, customizing offerings for various industries such as education, public services, and financial services. This strategic expansion has led to a strong renewal rate and an expanded customer base, as businesses seek ways to consolidate expenses and improve operational efficiency.

Will This Aid WDAY?

With strong demand trends, Workday is confident about its growth potential in the remainder of fiscal 2025 and beyond. The company plans to channel higher investments into key industries and innovation efforts to broaden its reach within the partner ecosystem. This is expected to yield healthy top-line growth through its Subscription business as anticipated by the company.

Workday has a long-term earnings growth expectation of 21% and has achieved an average earnings surprise of 9.3% over the past four quarters. With an improving market demand across its offerings, supported by a flexible business model and solid cash flow, the stock appears set to trend upward in the future.

WDAY’s Zacks Rank

Currently, Workday holds a Zacks Rank of #2 (Buy).

Other Key Picks

InterDigital, Inc. (IDCC - Free Report) currently has a Zacks Rank of 1 and boasts a long-term growth expectation of 17.44%. InterDigital is recognized for its advanced mobile technologies that facilitate wireless communications. The company designs and develops a wide array of sophisticated technology solutions for digital cellular and wireless 3G, 4G, and related products.

Arista Networks, Inc. (ANET - Free Report) also holds a Zacks Rank of #2 and is positioned to benefit from strong momentum and diversification across its main verticals and product lines. The company employs a software-driven, data-centric approach to assist customers in building their cloud architecture and enhancing their cloud experiences. Arista has delivered an earnings surprise of 14.8% on average over the past four quarters, positioning it well for growth in the data-driven cloud networking market.

Ericsson (ERIC - Free Report) carries a Zacks Rank of #2. In the last reported quarter, Ericsson posted an earnings surprise of 22.22%. As a leading provider of telecom services and communication networks, the company is also diversifying into ICT (information and communications technology) solutions.

Stock, Revenue, Growth