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Workday (NYSE:WDAY) reported another quarter of strong growth. In fact, its Y-Y revenue growth accelerated from 61% in its April quarter to 72% in its July FQ2. And these FQ2 sales were up 17.3% sequentially.

On July 3rd, I wrote an article titled "Workday: A Balanced and Positive View" and recommended the stock for growth portfolios. In the eight weeks since, WDAY shares have gained 18%. Interestingly, that percentage is about one-fourth that 72% FQ2 annual sales growth.

Workday shares have steadily performed each quarter since the company's October 2012 IPO. By quarter, the stock appreciation has been:

  • 9% to the end of the December 2012 quarter
  • 11% in Q1, calendar 2013
  • 13% in Q2 calendar 2013
  • 16% in Q3 calendar 2013 through August 27th.

For their October quarter, Workday management forecast 58-62% sales growth. For their FY2014 they raised their revenue growth guidance to 59-63%. This is the kind of growth that should keep Workday shares performing well for the balance of 2013, plus into and likely beyond 2014.

Obviously growth may slow as the company grows larger. However, Workday is newly moving to provide its cloud-based human resources services to companies of any size (rather than being limited to ones with fewer than 200,000-300,000 employees) and cloud based financial apps as well. Workday is just now gaining the reputation the very largest companies will bet their futures with.

Workday is not yet profitable because it is investing heavily to develop many new cloud services, including the financials and versions of their services tailored to the local needs of each country into which they are expanding. And they are hiring many additional salespeople to serve those new countries.

But compared to that 72% YTY sales growth, expenses grew fast, but less rapidly. R&D increased 63%, sales & marketing increased 44% and G&A increased 54% versus a quarter last year without the expenses of being a public company. The loss per share was ($0.13), better than the anticipated ($0.18). With continued high sales growth, Workday should reach breakeven within 1-2 years and then move to substantial profits.

By 2017 or 2018, continued 50%+ sales growth, 30% operating margins and a 20% tax rate could yield $4.00 in per share earnings. It helps that Workday has only a very modest 172 million shares outstanding. And it recently issued some convertible notes that will add only 7 million additional shares at a conversion price of $108 per share. They netted $533 million net proceeds from these notes, taking their cash balance to $1.3 billion. This is the kind of financial strength large customers like to see.

I expect Workday to be a great investment for years to come. It is the kind of high growth company you can invest in and not have to trade to generate excellent returns on your money.

As an interesting postscript insight into the mentality of Workday's management, here are the company's Core Values as presented on their company website. They are the kind of values on which a great company and much higher shareholder value can be built.

A Simple Approach to Happy Customers, Employees, and Families

When Dave and Aneel founded Workday, they wanted the company to embody all the good qualities of their past experiences. They also knew that the real measure of success would be the degree to which Workday abided by a set of key core values.

Dave has founded five companies in his career, and the core values he developed over the years were inspired by Jim Collins's book Beyond Entrepreneurship: Turning Your Business Into an Enduring Great Company. Core values give us a framework for leadership and daily decisions, and they help us enjoy our time at work. Sounds so simple, but too often companies get caught up in politics, ivory-tower attitudes, and market mania instead of focusing on the things that probably made them successful in the first place.

The following Workday core values and beliefs define what's important to Workday:

Employees

Most fundamentally, people are the core of our business. Without them, we would have no business.

Customer Service

Every investment and decision we make has our customers in mind, and we pull out all stops to put the needs and issues of our customers first.

Innovation

We aim for innovation not only in our Development organization, but also in the way we approach all aspects of our business.

Integrity

We say what we mean, and mean what we say. We stick to our commitments, treat everyone equitably, and communicate openly and honestly.

Fun

We work hard and play hard, investing in community and company events that help our employees and their families feel a connection to Workday beyond business as usual.

Profitability

Profitability is what enables us to give our employees and customers the best productivity tools, solutions, and services, so it's hugely important to us.

Source: Workday Reports 72% Revenue Growth