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Workday (NYSE:WDAY) announced earnings and once more it is getting difficult to believe what I know about investing is valid, since this stock keeps going up.

Workday's Fiscal Fourth Quarter Results are as follows:

  • Total revenues for the fourth quarter were $81.5 million, an increase of 89% from the fourth quarter of 2012.

  • Operating loss for the fourth quarter was $30.7 million, compared to an operating loss of $23.1 million in the same period last year. Non-GAAP operating loss for the fourth quarter was $25.2 million, compared to a non-GAAP operating loss of $21.7 million last year.

  • Net loss per basic and diluted share for the fourth quarter was $0.19, compared to a net loss per basic and diluted share of $0.77 in the fourth quarter of fiscal 2012. The fourth quarter non-GAAP net loss per basic and diluted share was $0.16, compared to a non-GAAP net loss per basic and diluted share of $0.73 during the same period last year.

  • Operating cash flows were $5.9 million in the fourth quarter. Free cash flows were a negative $4.0 million in the fourth quarter.

Fiscal Year 2013 Results:

  • Total revenues were $273.7 million, an increase of 104% from 2012. Subscription revenues for the full year were $190.3 million, up 115% year over year.

  • Operating loss was $117.9 million, compared to an operating loss of $78.4 million last year. Non-GAAP operating loss was $91.3 million, compared to a non-GAAP operating loss of $74.3 million last year.

  • Net loss per basic and diluted share was $1.62, compared to a net loss per basic and diluted share of $2.71 last year. The non-GAAP net loss per basic and diluted share was $1.26, compared to a non-GAAP net loss per basic and diluted share of $2.57 last year.

  • Workday generated operating cash flows of $11.2 million in 2013. Free cash flows were a negative $23.4 million.

  • Cash, cash equivalents, and marketable securities were $790.3 million as of January 31, 2013. Unearned revenue was $285.3 million, a 52% increase from last year.

One thing to notice about this company is this. It is producing losses both on a GAAP and non-GAAP basis. Why do I bring this up? Because at least other bubble companies make a profit on a non-GAAP basis. Not workday, they are losing money fair and square on both a GAAP and non-GAAP basis.

One interesting thing to note is this paragraph from the CEO's presentation:

The net loss per share was $0.16 on 162 million weighted average shares. Given our net loss, all outstanding stock options and common stock equivalents are anti-dilutive and not included in the loss per share calculation. In April, the lock-up of shares outstanding just prior to the IPO will expire. Approximately 63 million shares, including more than 14 million exercisable stock options not currently included in our share count will be available for trade after the lockup expires. Each total excludes shares held by insiders and no subject to the 144.

First of all, according to the company's latest 10-Q report dated November 30, 2012, there were approximately 166 million shares of the company's shares outstanding. The question is why is the company counting 162 million? I don't have an answer.

As per the anti-dilutive nature of the options, there are only two ways I know that options can be anti-dilutive:

  • If the options are underwater, then they do not count as total shares outstanding.
  • Upon exercise, the company will at the same time buy shares on the open market to offset the dilution and retire the shares -- at the cost to shareholders.

But in this case, I think the CEO is saying that these options are not exercisable -- and thus don't count -- until such a time comes that the company returns to profitability (I hope on a GAAP basis). So if the company makes even a penny, shareholders can expect dilution.

But then again if the 14 million options will be available for exercise after April 10, it means they can actually be sold. So I really don't understand the anti-dilutive nature of these options.

However, my most important issue is not the company, not their products and not the people. I am sure the products and everybody working there are as good as they come. My beef continues to be with the valuation of this company.

For the life of me, can someone please explain to me by what valuation formula or theory does any company with sales of $270 Million have the right to command a $10 billion market cap?

Honestly, I would really like an analyst who follows this stock and who is recommending it to please explain how he gets his target price.

Finally, the stock's float is only 26 million shares. Come April the 10th, 63 million shares and 14 million exercisable options (that are supposed to be anti-dilutive) will be available to trade.

Given the stock trades at 42 times sales and does not have any earnings -- and will not have any time soon -- come April 10, do current shareholders holding this stock feel lucky?

P.S. Workday is so expensive, it makes the other SaaS stocks in the space: Cornerstone OnDemand (NASDAQ:CSOD), NetSuite (NYSE:N), Saba Software (OTCPK:SABA), Ultimate Software (NASDAQ:ULTI), and Salesforce.com (NYSE:CRM), look cheap.

Source: Do Workday Shareholders Feel Lucky?