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Workday: Resilient Business Model And Sustainable Growth

Jun. 11, 2020 6:15 PM ETWorkday, Inc. (WDAY)1 Comment
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Tech and Growth


  • Workday is an attractive investment opportunity, given its deep moat in the enterprise HCM and Financial Management, steady growth, and strong cash flow generation.
  • The sticky client base and its high-quality licensing business model will help in weathering the ongoing uncertainty.
  • We expect a sustainable +20% growth with potential operating margin expansion above its 16% target in the near term.


We believe that Workday (NASDAQ:WDAY), the SaaS Finance and HR giant, presents an attractive long-term growth investment opportunity. Workday is one of the most disruptive players in the enterprise SaaS HCM (Human Capital Management) and Financial Management market. Over the last five years, revenue and FCF (Free Cash Flow) have grown by ~5x and ~9x consecutively. Despite being a +$3.6 billion-a-year business, Workday also still maintains a +20% growth with steady FCF profitability. In this first coverage of Workday, we will take a closer look at its high-quality business model and strategic go-to-market approaches, which we believe should allow the company to maintain its resilience and outperformance. We assign the stock an overweight rating.


We expect the strategic focus on client base expansion to drive growth and margin expansion. As the ongoing uncertainty may negatively affect the sales cycle for new deals, we believe that Workday will instead continue to benefit from targeting its client base. In doing so, Workday should drive growth and profitability by incurring lower marketing expenses and focusing on quicker wins with add-on sales. Over the last few quarters, the company has reportedly achieved a 100% net retention rate as the add-on business has seen rapid growth.

(source: company's 2019 analyst day slide)

In Q1, the add-on business maintained its momentum as Workday achieved its first-ever $1 billion revenue quarter with $1.02 billion quarterly revenue, up 23% YoY. Assuming that a significant portion of the growth for 2020 will come from the existing client base and that Workday has comprehensive add-on offerings in its fast-growing Financial Management segment, we think that the +20% growth is highly sustainable.

(source: company's 2019 analyst day slide)

Furthermore, the operating margin would have been at 20.6% instead of ~12.8% if the company did not pay the one-time bonus payment for its employees

This article was written by

Tech and Growth profile picture
Former tech operator, entrepreneur, and venture capitalist with over a decade of experience starting, investing, and building companies in Asia and US. Long-only manager seeking multi-asset technology / growth opportunities driving disruptive innovation globally.

Analyst’s Disclosure: I am/we are long WDAY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (1)

Totally agree on these points. Workday has a sticky product that many large companies have migrated to. That puts them in a great position for add-on offerings and longer term growth.
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