As background for this article, please see my previous two Workday (WDAY) articles published July 3 and August 28. Despite the October/November correction for many of the highest-growth, higher valuation stocks, Workday shares are up 25% over the five months since July 8 - and up 10% over the three months since August 28 with more than all of that gain a result of yesterday's 12% rise in the share price.
Workday reported 76% revenue growth for its October FQ3, up from 61% in FQ1 and 72% in FQ2. It is the fastest growing cloud computing company by a factor of two. By comparison, NetSuite (N) and Salesforce.com (CRM) posted sales growth of 34% and 36%, respectively, in their most recent quarters.
Workday has a high valuation but I suggest it is warranted by this high growth and its strong leading position in the new market for cloud-based services to replace traditional software to handle human resource management (HRM) and financials as well. Plus it has new Big Data offerings that provide the ability to analyze and make better real-time decisions from employee data.
The stellar and accelerating growth at Workday is most greatly being driven by winning business with more larger customers. As with any new young company with leading technology, it has had to prove itself to enterprises. That was easiest to do with medium size businesses but now it is winning more larger deals with larger enterprises. And its service is being adopted more extensively by more divisions of existing customers,
This is one of the most classic of growth positionings that can last years and thereby provide a superior multi-year investment. Workday is a $500 million company that I expect will be able to grow to be a several billion dollar company over the next few years. Workday just reported a 76% revenue growth quarter. But if it grows at just 50% per year over the next four years it could be a $2.5 billion company - five times its current size by 2017.
The opportunity for this kind of growth is in front of Workday. The Oracle (ORCL) and SAP (SAP) HR non-cloud software markets represent many billions of potential TAM, not to mention the far larger market for financials software.
Workday management just needs to execute and I think it will. The management has proven track records and the company is one of the hottest places to work here in Silicon Valley so it can hire the best and brightest people. The company is known as one of the most employee-oriented of all Silicon Valley companies. As Workday management likes to say, happy employees lead to happy customers and superior returns for investors.
If you like the comfort of modest valuations in your investments, Workday shares are not for you. But if you like to invest in great growth businesses, I suggest you consider ownership in this fine high-growth company. Of course, it would be ideal to buy on a correction but I suggest initiating at least partial positions at current levels. Please feel free to ask me any questions you may have.