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On Friday, Stifel analysts adjusted their outlook on Workday (NASDAQ:WDAY) shares, lowering the price target from $310.00 to $275.00 while maintaining a Hold rating. The revision followed Workday’s recent earnings report, which showed a typical quarterly beat on both revenue and margins. The company’s adjusted operating margin expanded to 30.2%, surpassing the 28.2% consensus. The company maintains strong fundamentals with a 75.66% gross profit margin and a healthy 2.07 current ratio. According to InvestingPro data, Workday demonstrates solid financial health with a "Good" overall score, supported by strong growth and profitability metrics.
Despite the positive earnings, Workday’s stock experienced a roughly 7% decline in after-hours trading, contributing to a significant 12.83% drop over the past week. This drop was attributed to the company’s calculated remaining performance obligations (cRPO) growth, which, at 15.6%, was only at the midpoint of management’s guided range. The cRPO figure was notably influenced by a temporary boost of approximately 50 basis points from short-term "tenant" contracts that were previously not included in cRPO calculations but were recorded under subscription revenue. The company maintains revenue growth of 14.95% over the last twelve months, with analysts expecting continued profitability this year.
Looking ahead, these tenant contracts are expected to contribute a full percentage point to cRPO growth for each quarter of the remaining fiscal year 2026. However, the market had anticipated a faster acceleration in Workday’s core business bookings throughout FY26. With the expectation that subscription and bookings growth will likely continue in the mid-to-low teens in the upcoming quarters, even as AI bookings increase, Stifel analysts believe that operating margin improvements alone will not lead to a significant expansion in the company’s valuation multiples.
The analyst’s commentary shed light on the factors influencing the revised price target, stating, "Clearly investor expectations were centered around the belief the core Workday business would see a bookings acceleration over the course of FY26. So, with subscription/bookings growth likely to remain in the mid-to-low teens area in the coming quarters, even as AI bookings accelerate, we do not expect op-margin upside alone to drive meaningful multiple expansion from current levels and adjust our target to $275." Trading at a P/E ratio of 150.87 and an EV/EBITDA multiple of 61.1, valuation remains a key consideration. For deeper insights into Workday’s valuation metrics and growth potential, InvestingPro offers comprehensive analysis through its detailed Pro Research Report, available along with 12+ additional ProTips.
In other recent news, Workday reported its first-quarter revenue, which slightly exceeded expectations, while its operating margin outperformed analysts’ predictions. RBC Capital Markets maintained an Outperform rating with a $340 price target, noting the company’s modest earnings beat and increased operating margin outlook for fiscal year 2026. Piper Sandler raised its price target to $255, highlighting a slight overperformance in subscription growth and potential stabilization in the coming quarters. Meanwhile, KeyBanc Capital Markets adjusted its price target to $325, maintaining an Overweight rating, and attributed the change to new inclusions in Workday’s performance metrics.
BNP Paribas (OTC:BNPQY) Exane reiterated an Outperform rating with a $280 target, expressing optimism for future growth despite weak billings and no "beat and raise" in earnings. The firm highlighted potential revenue growth through product deliverables and AI technologies. TD Cowen reduced its price target to $310 but maintained a Buy rating, citing cautious spending yet acknowledging Workday’s compelling valuation. Workday’s management has not observed significant macroeconomic impacts, remaining focused on core growth strategies, including AI advancements and partnership expansions. These developments provide a comprehensive view of Workday’s current financial and strategic positioning.
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