In an era where cloud computing
and artificial intelligence are reshaping how businesses manage their
operations, Workday (NASDAQ: WDAY) continues to stand out as a reliable
performer in the enterprise software landscape. The company’s latest Q2 2026
earnings report which ended in July 2025 underscores its ability to combine
consistent growth with improving profitability a rare balance in the
competitive SaaS sector. In this article we will dive into Workday recent
earnings, stock performance & valuation, growth potential, and the risks
investor should consider.
About Workday
Workday is a leading provider of
enterprise cloud software focused on human capital management (HCM), financial
management, planning, payroll, analytics, and related enterprise applications.
The company was co-founded in 2005 by David Duffield and Aneel Bhusri,
following Duffield’s exit from PeopleSoft after Oracle’s acquisition of that
firm. Headquartered in Pleasanton, California, Workday serves customers across
many industries globally, licensing subscription software and providing
professional services for implementation, integration, and support.
Workday Financial Performance
Workday delivered a strong set of
results in its Q2 2026 earnings, showcasing steady top-line expansion and
significant earnings growth. For the quarter ended July 2025, revenue reached $2.34
billion, up 12.61% from $2.08 billion in the same quarter last year. Earnings
per share (EPS) climbed sharply to $0.84, compared with $0.49 a year earlier,
representing a robust 71.43% year-over-year increase. On a trailing
twelve-month (TTM) basis, revenue rose to $8.96 billion from $7.86 billion, an
improvement of 13.94%, while free cash flow per share advanced to $8.88 from $7.99,
gaining 11.14% year over year. However, TTM EPS for Q2 2025 declined to $2.16
from $5.74 in Q2 2024, down 62.36%, likely reflecting prior-period adjustments
or non-recurring expenses. Profitability metrics remained healthy, with a gross
profit margin of 75.58%, a net margin of 6.51%, and a free cash flow margin of
26.72%. The company also maintained a solid balance sheet, supported by a return
on assets (ROA) of 2.81%, return on equity (ROE) of 6.66%, and a debt-to-equity
ratio of just 0.41, indicating prudent leverage.
Over the past five years, Workday
has grown its revenue at a 17.6% CAGR and free cash flow at 21%, while net
income has fluctuated. Although net income is still fluctuating, Workday’s
revenue and free cash flow have been growing steadily.
Workday Fiscal 2026 Financial
Forecast
Looking ahead, analysts project
Workday’s 2026 revenue to reach $9.52 billion, a 12.69% increase from 2025’s $8.45
billion, and non-GAAP EPS to grow 21.95% to $8.90 from $7.30 in 2025. Analysts
maintain a Buy consensus rating with an average price target of $282.13,
implying an 18.36% potential upside, while the most bullish estimates go as
high as $340, suggesting up to 42.64% upside potential for investors.
WDAY Stock Price Performance
and Valuation
At the time this article was written the stock was trading at $238.36. Workday has seen its stock rise modestly by 1.2% over the past year, underperforming the S&P 500, which gained 18.2% during the same period. Over the longer term, the stock is up 5.6% over the past five years, also trailing the S&P 500’s impressive 93.6% increase. While the underperformance is discouraging, it has made Workday’s stock cheaper than before, because the business is still growing at a double digit rate.
Despite this relative underperformance, Workday’s valuation metrics
suggest the stock remains attractively priced for a high-quality enterprise
software company. The company currently trades at a price-to-sales (P/S) ratio
of 7.08 and a forward P/S of 6.69. Its non-GAAP price-to-earnings (P/E) ratio
stands at 28.89 on a trailing basis and forward P/E of 26.77. While its price-to-free-cash-flow
(P/FCF) ratio is 26.58, reflecting a reasonable valuation for a software
company.
Based on Fiscal.ai data, if we
look at the valuation over the past five years, Workday’s forward P/S, forward
P/E, and P/FCF are all below the average. Although it’s still not cheap, the
stock is trading at a more reasonable valuation than in the past, and Workday’s
business is still projected to grow at a double-digit rate in the coming years.
Workday Growth Potential
Workday growth prospect remains
solid, driven by several factors.
- AI-Driven Platform Innovation
and Market Leadership
Workday’s commitment to AI is driving major growth and cementing its leadership in enterprise software innovation. In Q2 2026, annual contract value from AI products more than doubled year-over-year, with over 75% of new deals including AI solutions. Workday Illuminate, its AI platform, has been adopted by over 70% of core customers, showing strong market acceptance. Strategic acquisitions like the $1.1 billion purchase of Sana enable custom AI agent creation, while acquiring Paradox enhances conversational AI recruiting capabilities.
These investments have rapidly grown agentic AI revenue to over $150 million annually, up from under $50 million a year ago. Internally, about 80% of employees use AI tools, reducing recruiter workloads by 12%. This broad AI integration creates durable competitive advantages, positioning Workday to capture significant value in the expanding $589 billion cloud AI market. - Strong Customer Base Expansion
and High Retention Rates
Workday serves over 11,000 customers across 175+ countries, including more than 65% of the Fortune 500 and over 70% of the top 50 Fortune 500 companies. In Q2 2026, notable new customers included Banamex, Carrefour, Masan Group, Memorial Health, and Red Coats, while existing major clients like Google and Nationwide Insurance expanded their relationships. The company boasts a high customer retention rate of 97%, highlighting strong satisfaction and the effectiveness of its integrated platform.
Internationally, growth is driven by penetration in diverse market segments, with over 65% of EMEA customers being SMEs. Workday's subscription revenue backlog grew 17.6% year-over-year to $25.37 billion, providing strong future revenue visibility. This broad customer base, combined with opportunities from new product adoption and geographic expansion, supports sustained revenue growth across multiple sectors and regions. - Subscription Revenue Growth
and Expanding Market Opportunity
Workday's subscription-based model continues to drive stable, scalable revenue growth. In Q2 2026, subscription revenues rose 14.0% year-over-year to $2.169 billion, outperforming full-year guidance and reflecting strong execution. The 12-month subscription backlog reached $7.91 billion, up 16.4%, while total subscription backlog grew 17.6% to $25.37 billion, ensuring strong future revenue visibility. Management raised fiscal 2026 subscription revenue guidance to $8.815 billion, a 14.2% increase, showing confidence in the growth trajectory.
With a large total addressable market estimated at $160 billion, Workday’s cloud-native architecture and integrated platform create cross-selling and upselling opportunities. AI, analytics, and industry-specific innovations further expand its market potential. International revenue accounts for about 25% of total revenue, with significant expansion opportunities in key markets like India through local data centers and partnerships.
Risks to Consider
While Workday stock looks compelling,
we should be mindful of potential risks.
- Intense Industry Competition
Workday competes in a crowded cloud enterprise software market against major rivals like SAP, Oracle, and Microsoft, along with various niche players. This intense competition pressures Workday’s pricing and can slow sales cycles. Competitors often bundle products or offer aggressive discounts, limiting Workday’s ability to expand its market share in key sectors, especially where integrated, lower-cost solutions are preferred by customers. - Financial Risks from
Subscription Model and Market Conditions
Workday relies heavily on subscription fees for revenue, which exposes it to risks from high customer attrition or slower new customer acquisition. Economic slowdowns can further pressure revenue growth. Additionally, fluctuations in foreign exchange rates and margin compression from investments in AI technology introduce financial uncertainty, potentially impacting profitability and cash flow stability. These factors combined create a complex environment impacting Workday's financial performance. - Cybersecurity Vulnerabilities
Workday faces significant cybersecurity risks because it stores sensitive financial and employee data on its cloud platform. Increasingly sophisticated cyberattacks, including AI-powered threats and social engineering schemes, pose major dangers. These risks could lead to data breaches, system downtime, loss of reputation, and costly remediation efforts. The growing complexity of attacks emphasizes the need for robust security measures and employee vigilance to protect enterprise data.
Conclusion
Workday demonstrates a strong
combination of steady growth, improving profitability, and solid financial
discipline. The company continues to expand its revenue and earnings while
maintaining robust cash flow and manageable leverage. Despite modest stock
performance compared to the broader market, Workday’s reasonable valuation and
promising growth outlook make it an attractive long-term investment. With
rising demand for cloud-based enterprise solutions and AI-driven innovation,
Workday offers investors both stability and meaningful upside potential ahead.
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