Enterprise cloud company Workday (WDAY) priced its shares at $28 Thursday night in a highly anticipated IPO. The company had previously set a range of $21-$24 in its original prospectus, before once again raising the pricing amount to $24-$26 due to a high level of interest. With shares already above the revised range, will the IPO be a boom or a bust when shares hit the open market on the New York Stock Exchange?
Workday is an enterprise cloud based application company. The firm offers human capital management for companies through its offerings of payroll, financial management, time tracking, procurement, and employee expense tracking.
Workday offers its subscription based services to 340 customers. With a large customer base, no single customer makes up 5% or more of Workday's revenue, helping to keep the revenue stream diversified. Subscriptions are signed for three to five years, with fees based on the size of the company. Workday had a backlog of $325 million as of July 31st, compared to $240 million on January 31st. The company lists some pretty impressive companies as customers including:
· Aviva International Holdings, AIG, Flextronics, Four Seasons, Kimberly-Clark, Lenovo, VMWare, Cardinal Health, Chiquita, Tyco, Valspar
Services are offered to companies in categories ranging from technology, financial services, business services, health care, manufacturing, consumer, and retail. Along with companies, Workday is expanding its offerings to manage solutions for education and government employers. Workday now counts the following schools as customers:
· Academy of Art University
· Brown University
· Cornell University
· Georgetown University
· New York University
· State of Nebraska
· University of Southern California
Here is the industry background of Workday's sector:
· The market for enterprise resource management software is large and highly strategic
· Changes in the business environment, user expectations and technology are driving a disruptive re-platforming of the enterprise application market
· Legacy enterprise applications provide limited business context, and can be inflexible and expensive to implement and maintain
The company releases three updates to its software every year. With a cloud based platform, customers get the updates for free, and don't have to worry about expensive expansion software. The current edition of Workday 17 features over 100 new and improved items. Here is a look at the software that Workday has created to further its revenue stream:
· 2006: Human capital management application
· 2007: Financial management application
· 2008: Procurement and Employee expense management application
· 2009: Workday payroll, mobile application
· 2010: Talented management application
· 2011: iPad application, Workday integration platform
Workday's growth strategy going forward consists of:
· Expand our customer base
· Maintain our innovation leadership by strengthening and extending our suite of applications
· Expand internationally
· Deepen our relationship with existing customer base
· Further develop our partner ecosystem
· Leverage our unique culture
Workday has a strategic partnership with Salesforce.com (CRM). The company competes against SAP, Oracle (ORCL), and Automated Data Processing (ADP). Workday's founder David Duffield, was the former founder of Peoplesoft, which was acquired by Oracle in 2005.
Looking at the financials of Workday, the company has increased its revenue significantly but still trades with a net loss. Here is the revenue from the last three years, along with the net losses:
· Fiscal 2010: $25.2 million revenue, $-49.9 million net loss
· Fiscal 2011: $68.1 million revenue, $-56.2 million net loss
· Fiscal 2012: $134.4 million revenue, $-79.6 million net loss
In the most recent six months (ending July 31), Workday posted revenue of $119.52 million, which was more than double the prior year's $54.82. Here is a look at Workday's revenue on a quarterly basis that is growing (in $millions):
|Subscription Revenue||Professional Revenue||Total Revenue|
After the initial price offering, co-founders and affiliates will own 67% of the voting power thanks to a dual class level of stock. There will be a total of 160.29 million shares outstanding including Class A and Class B shares. The company plans on using proceeds from the IPO for working capital and general corporate purposes. Workday has said that the funds may be used for strategic acquisitions.
Workday shares have already gained on two occasions prior to their IPO due to high demand. The IPO is the highest technology offering since Facebook (FB) hit the open market. Demand will continue to be high when shares trade Friday or Monday. I would let the dust settle before jumping into this company. If you can get shares under $30, I would do so for the long run. With only 340 customers, Workday has plenty of room to grow. The company has minimal exposure to international markets, setting up future expansion down the road. The company has come up with a new application or offering every year to try and upsell to existing customers. Revenue is growing each sequential quarter and offers great growth going forward.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in WDAY over the next 72 hours.