Workday stock falls as guidance disappoints despite earnings beat

Workday (NASDAQ:WDAY) reported better-than-expected third-quarter earnings and revenue on Tuesday, but shares tumbled 6% in after-hours trading as the company's guidance fell short of analyst expectations.

The enterprise cloud applications provider posted adjusted earnings per share of $1.89, surpassing the analyst estimate of $1.76. Revenue for the quarter came in at $2.16 billion, beating the consensus estimate of $2.13 billion and marking a 15.8% increase YoY.

Despite the strong quarterly performance, investors seemed to focus on the company's outlook. Workday forecasts fiscal 2025 subscription revenue of $7.703 billion, representing 17% growth.

While solid, this guidance appears to have disappointed some market participants expecting more robust growth.

Carl Eschenbach, CEO of Workday, commented on the results, stating, "Workday's solid performance in Q3 reflects the trust our customers place in us across industries, the global momentum around our AI-driven innovations, and the strength of our partner ecosystem."

The company reported that its 12-month subscription revenue backlog was $6.98 billion, up 15.3% from the same period last year. Total (EPA:TTEF) subscription revenue backlog reached $22.19 billion, increasing 20.3% YoY.

Workday's operating cash flows were $406 million compared to $451 million in the prior year. Free cash flows were $359 million, down from $391 million in the same quarter last year.

For the fourth quarter, Workday expects subscription revenue of $2.025 billion, representing 15% growth, with a non-GAAP operating margin of 25.0%.

The company also updated its full-year fiscal 2025 guidance, projecting subscription revenue of $7.703 billion and a non-GAAP operating margin of 25.5%.