Workday Eating into Oracle and SAP

Workday (NYSE: WDAY) continues to compete and beat Oracle and SAP at their own game. The company has shown how to uproot legacy vendors like Oracle and SAP by offering a cloud-based solution. In the last quarter, Workday replaced Oracle at Bank of America and signed 40 new customers within the cloud-based financial management space at the expense of Oracle and SAP. According to Workday, every large customer that it is winning is replacing either an Oracle or SAP implementation of legacy software and now, it is replacing them in the cloud-based application segment as well.

Workday’s Financials

For the recently reported fourth quarter, Workday’s revenues grew an impressive 43% over the year to $323.4 million. It ended the quarter with a net loss of $0.01 per share. The market was looking for revenues of $319.6 million with a loss of $0.05 per share. This was the thirteenth successive quarter since the company went public 14 quarters ago that it reported results that surpassed market expectations.

By segment, subscription revenues grew 44% over the year to $261.8 million and professional services revenues grew 38% to $61.63 million.

It ended the year with revenues growing 48% to $1.16 billion and a net loss of a penny per share compared with a loss of $0.33 per share reported a year ago. This was the first year that Workday crossed the billion dollar annual revenue milestone – a remarkable feat considering the company is only ten years old. It is also the third purely cloud company to cross the milestone with Salesforce and ServiceNow being the other two.

The market wasn’t too impressed with its outlook, though. For the current quarter, Workday projected revenues of $337 million-$339 million, falling short of the Street’s forecast of $343 million. It gave an outlook of revenues of $1.54 billion-$1.55 billion for the year compared with the market’s expectation of $1.55 billion.

Workday’s Improving Offerings

During the quarter, Workday continued to improve its market offerings. It announced plans to extend partnership with ADP to provide multinational organizations with a seamless and unified global payroll experience. Through the partnership, Workday’s Human Capital Management and ADP’s Global Payroll applications will be integrated within a single user experience in the Workday application. The integration will also help with tracking legislative updates from ADP that can now be made through the Workday user interface to ensure that customers follow the required regulatory process.

Last month, Workday realigned its sales team to a structure that allows these teams to sell both financial management apps and human resources applications into key accounts. Earlier Workday was selling through different sales teams for different products. Its key to success lies in its ability to get organizations upgraded while minimizing both cost and effort. Legacy applications like those of Oracle and SAP are both mired with past releases where upgrades are costly and time consuming. Workday’s cloud offering allows organizations to free themselves from this painful tangle of legacy software applications.

Its stock is trading at $71.91 with a market capitalization of $13.81 billion. It touched a 52-week high of $93.62 in May last year. It touched 52-week low of $47.32 in early February.

According to a report by Market Research Media, the global HR software market is projected to grow 2.4% annually to $9.2 billion by the year 2022. It doesn’t appear to be a very fast paced market, but Workday clearly is not bothered as it continues to eat into other vendors’ market share by harnessing the growth in cloud-based HR software market. Analysts estimate this market grew 21% last year and is expected to grow 10% annually through 2019.