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Introduction & Market Context
Workday Inc (NASDAQ:WDAY) released its Q1 FY26 investor presentation on May 22, 2025, showcasing solid financial performance with revenues and earnings exceeding analyst expectations. Despite reporting positive results, Workday’s stock dropped 6.73% in after-hours trading to $253.75, following a 1.43% gain during regular trading hours.
The enterprise software provider reported total revenues of $2.24 billion, up 12.6% year-over-year, surpassing the forecasted $2.22 billion. Non-GAAP earnings per share came in at $2.23, significantly above the expected $2.01. However, the market’s negative reaction suggests investors may have had higher expectations or concerns about future growth trajectory.
Quarterly Performance Highlights
Workday’s Q1 FY26 financial results demonstrated continued momentum across key metrics. Subscription revenues, which form the core of the company’s business model, grew 13.4% year-over-year to $2.06 billion.
As shown in the following financial highlights table:
Particularly notable was the company’s improvement in profitability, with non-GAAP operating margin expanding 437 basis points year-over-year to 30.2%. This substantial margin expansion reflects Workday’s increasing operational efficiency and economies of scale. Free cash flow showed impressive growth of 44.6% to $421 million.
The company’s subscription revenue backlog, an important indicator of future revenue potential, grew 19.1% to $24.62 billion, while the 12-month backlog increased 15.6% to $7.63 billion. These metrics suggest strong forward momentum for Workday’s business.
Strategic Initiatives
Workday continues to position itself at the intersection of enterprise software and artificial intelligence, with significant investments in its Illuminate AI platform. The company introduced new AI agents designed to accelerate hiring processes, enhance frontline worker experiences, and simplify financial operations.
The company’s platform architecture illustrates how AI is being integrated across its product portfolio:
Customer expansion remains a key growth driver, with Workday welcoming new customers including Dover Corporation (NYSE:DOV), Mutual of Omaha Insurance Company, and United Airlines, while expanding relationships with existing clients like ASDA stores, Chipotle (NYSE:CMG), and CVS Health (NYSE:CVS).
The presentation highlighted notable industry growth, with both the technology & media and manufacturing verticals each crossing $1 billion in annual recurring revenue. International expansion continues with Workday going live on the AWS U.K. public cloud and announcing a new location for its EMEA headquarters in Dublin.
Long-Term Growth Trajectory
Workday’s long-term financial trajectory shows consistent growth in subscription revenues alongside margin expansion:
The company maintains a strong gross revenue retention rate of 98%, demonstrating high customer satisfaction and limited churn. This metric is particularly important for subscription-based businesses as it indicates the stability of recurring revenue streams.
Workday’s overall scale is impressive, with the presentation highlighting that the company serves over 11,000 global customers operating in more than 175 countries, including over 60% of the Fortune 500 companies. The platform supports more than 70 million users under contract, generating over 1 trillion transactions annually.
Forward-Looking Statements
For Q2 FY26, Workday projects total revenues of $2.34 billion, representing 12% year-over-year growth, with subscription revenues expected to reach $2.16 billion, up 13% year-over-year. The company anticipates non-GAAP operating margin of 28%, which would be a 314 basis point improvement from the prior year.
For the full fiscal year 2026, Workday provided the following guidance:
The company expects total revenues of $9.5 billion (12% growth) and subscription revenues of $8.8 billion (14% growth) for FY26. Non-GAAP operating margin is projected to reach 28.5%, representing a 262 basis point improvement year-over-year. Operating cash flows are expected to grow 12% to $2.75 billion.
During the earnings call, executives noted that they anticipate faster growth in the second half of the year, driven by continued AI product monetization and strategic investments in emerging markets.
Investor Perspectives
The disconnect between Workday’s strong financial performance and the negative stock reaction highlights the high expectations investors have for high-growth software companies. Despite beating analyst estimates, the 12-13% revenue growth projected for the coming quarters may have disappointed investors looking for accelerating growth rates.
CEO Carl Aschenbach emphasized the company’s AI strategy during the earnings call, stating, "The future of work has evolved. Today, it’s about how humans and AI agents work together." This focus on AI integration is central to Workday’s growth strategy, as illustrated in their presentation.
The company also announced that its Board of Directors approved a new share repurchase program to buy back up to an additional $1.0 billion of shares of its Class A common stock, potentially signaling management’s confidence in the company’s long-term prospects and a commitment to returning value to shareholders.
Workday continues to balance growth with responsible business practices, highlighting its commitments to data privacy, security, and environmental sustainability:
While the market’s immediate reaction was negative, Workday’s fundamentals remain strong, with consistent revenue growth, expanding margins, and a solid customer base. The company’s focus on AI innovation and international expansion positions it well for long-term growth in the enterprise software market, despite short-term investor concerns.
Full presentation:
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