Workday's stock dives as earnings reveal the cost of competing in AI

By Hannah Pedone

Workday's margin outlook comes up short of expectations as the company steps up AI investments

Workday shares fell in extended trading on Tuesday after the company fell short with its guidance for the new fiscal year.

Workday's stock has been beaten down by artificial-intelligence fears, and Tuesday's earnings report only furthered those concerns.

Shares fell more than 9% in extended trading Tuesday after the company came up short with its guidance and discussed stepped-up AI investments of its own.

Workday (WDAY) is modeling $9.925 billion to $9.95 billion in subscription revenue for the fiscal year 2027, representing growth of 12% to 13%. The FactSet consensus calls for $9.99 billion, and Workday said on its prior earnings call that it was anticipating about 13% growth.

The company expects $2.335 billion in subscription revenue for the fiscal first quarter, up 13% from a year before. Analysts were modeling $2.35 billion, and Workday said on its last earnings call that it expected about 14% growth for the fiscal first quarter.

Workday also came up short on guidance for adjusted operating margins. The company expects adjusted operating margins of 30.5% for the fiscal first quarter and 30% for the full fiscal year 2027. Analysts were expecting 30.9% for the quarter and 31.2% for the full fiscal year.

Workday CFO Zane Rowe said on the earnings call that Workday was "committed to our medium-term subscription revenue growth targets," but "prioritizing incremental investment in our AI roadmap to capture a larger market opportunity."

He added that the company remains focused on margin expansion, "albeit at a slower pace in the near term than what we previously communicated."

See also: The stock market is reflecting fears of an AI apocalypse for white-collar jobs

Workday has been under pressure this year due to investor concerns about the software sector's ability to monetize artificial intelligence. The stock has fallen 39.3% so far this year, and is down 50.1% in the past 12 months.

Read more: Did a blog post just cause software stocks to lose more than $200 billion in market cap?

The company has been trying to expand its reputation beyond workplace software by adding offerings for human-resources functions like payroll and talent management, and broadening into financials.

Recent management changes haven't eased investors' concerns.

Earlier this month, Aneel Bhusri took over the CEO post from Carl Eschenbach, who was known for his strong sales relationships.

Jefferies analyst Brent Thill downgraded Workday's stock to hold from buy on Monday, writing that he was worried about the "abrupt" departure of the company's well-liked former CEO.

Despite disappointing investors with its guidance, the company's earnings for the fiscal fourth quarter were more upbeat.

Workday reported $2.47 in adjusted earnings per share for the fiscal fourth quarter, up from $1.92 the year before, and ahead of the $2.32 consensus view.

The company also reported revenue of $2.53 billion, up 14.5% from the year before, and essentially matching the FactSet consensus of $2.52 billion.

See also: Why did AI 'science fiction' spur market panic? We asked a behavioral-finance expert to find out.

-Hannah Pedone

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02-24-26 2024ET

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