Workday has revised its subscription revenue forecast for the fourth quarter of fiscal 2025, citing weaker client spending on its human capital management software. The cloud software provider projects subscription revenue of $2.025bn for the quarter ending 31 January 2025, representing a 15% year-over-year growth, slightly below Wall Street’s estimate of $2.04bn.
For the full fiscal year 2025, Workday anticipates subscription revenue of $7.7bn, a 17% increase from the previous year but slightly below analysts’ projections of $7.72bn. Looking ahead to fiscal 2026, the company expects approximately $8.8bn in subscription revenue, representing 14% growth. Workday noted that first-quarter growth in fiscal 2026 will likely be slightly below the annual rate. This is largely due to the leap year effect. Stronger growth is expected in the second half of that year, driven by AI initiatives and strategic wins from the third quarter.
Competitive pressures and market challenges
For the third quarter ending 31 October 2024, Workday reported total revenue of $2.16bn, surpassing analyst forecasts of $2.13bn. Subscription revenue for the quarter stood at $1.96bn, in line with expectations.
The company highlighted a 15.3% year-over-year increase in its 12-month subscription revenue backlog, which reached $6.98bn, and a 20.3% rise in its total backlog, which now stands at $22.19bn. Operating income for the quarter improved to $165m, or 7.6% of total revenue, compared to $88m, or 4.7%, in the same period last year. On a non-GAAP basis, diluted net income per share was $1.89, exceeding analysts’ expectations of $1.76 per share.
Workday continues to face challenges from reduced technology budgets as clients respond to high interest rates and a cooling labour market. Additionally, the company faces strong competition from larger rivals such as Automatic Data Processing (ADP).
To bolster its market position, Workday has introduced AI features to its product offerings. Some of its strategic wins from the third quarter include deliverables that will contribute to fiscal 2026 revenue growth, though these will have minimal impact in the near term.
“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,” said Workday’s CEO Carl Eschenbach. “Organisations are increasingly consolidating on the Workday platform to reduce total cost of ownership, simplify their operations, and to unlock the power of our best-in-class AI solutions.”
Shares of Workday fell over 10% in after-hours trading following the announcement. Year-to-date, the stock has declined approximately 3%, underperforming competitors such as ADP and Paycom.
In September, Workday announced Illuminate, its next-generation AI platform, which the company claims is built on one of the largest and cleanest HR and finance datasets globally. According to Workday, Illuminate is designed to accelerate manual tasks, assist employees, and transform business processes. The company reports that the platform is powered by over 800 billion business transactions processed annually on its system.
Workday asserts that Illuminate goes beyond analysing data by incorporating contextual understanding to decipher the “why” and “how” behind HR and financial processes. This reportedly includes insights into process connections, roles and responsibilities, current tasks, and prior conversational AI interactions. The company claims this combination of data and context enables precise decision-making, anticipates employee needs, and provides personalised experiences.
Additionally, Workday unveiled four new AI agents in September, which it says will simplify workflows in HR and finance. The Recruiter, Expenses, Succession, and Workday Optimize agents are designed to anticipate and streamline common business tasks. Powered by Illuminate, these AI agents are intended to increase productivity and enable users to focus on more strategic work.
According to Workday, these agents mark a transition from standalone AI features to comprehensive business process transformation, positioning them as the next stage of enterprise AI. The company has suggested this launch is part of its broader strategy to simplify business processes for end users and enhance workplace efficiency.
Read more: Workday’s Q2 FY25 net income increases by 67% to $132m
