Key Takeaways
- Workday delivered Q2 adjusted earnings of $2.75 per share, surpassing the analyst consensus of $2.61, with total revenue reaching $2.65 billion.
- The company’s subscription revenue climbed to $2.47 billion, representing 13.9% year-over-year growth and exceeding its own projections.
- Artificial intelligence initiatives now represent over 25% of new annual contract value, with more than 5,500 clients deploying at least one AI-powered agent.
- Management increased full-year fiscal 2027 subscription revenue outlook to $9.94B-$9.95B, reflecting 13% annual growth.
- The enterprise software company bought back 9.8 million shares worth $1.3 billion and greenlit an additional $4 billion share repurchase authorization.
Workday (WDAY) delivered impressive second-quarter results that exceeded analyst expectations across key metrics. Shares gained 1.5% to close at $193.57 during Thursday’s regular session, with momentum continuing into Friday’s premarket hours, adding another 1%.
The company reported adjusted earnings per share of $2.75, outpacing the Street’s $2.61 projection. Total revenue climbed 12.8% from the year-ago period to $2.65 billion, narrowly exceeding the $2.64 billion consensus forecast.
Subscription revenue—the company’s core business—reached $2.47 billion, marking a 13.9% year-over-year increase. This figure surpassed Workday’s internal forecast of approximately $2.455 billion.
The 12-month subscription backlog expanded 14.2% to $9.03 billion. Meanwhile, total subscription backlog hit $27.4 billion, representing an 8% year-over-year gain.
Adjusted operating income climbed to $824 million, representing 31.1% of total revenue, versus $680 million, or 29%, in the comparable quarter of 2024.
Adjusted net income grew to $677 million compared to $598 million in the prior-year period.
AI Adoption Accelerates
Artificial intelligence has emerged as a significant growth catalyst for Workday’s platform. Management disclosed that AI-related products contributed more than 25% of new annual contract value during the quarter.
The customer base utilizing at least one Workday AI agent now exceeds 5,500, representing sequential growth of more than 35% from Q1.
Co-founder and CEO Aneel Bhusri characterized the quarter as robust, highlighting AI’s increasing importance in driving new contract signings. CFO Zane Rowe emphasized the “continued momentum” in results, noting that AI has become a “strategic driver of customer expansion.”
Forward Outlook and Capital Returns
Looking ahead to Q3, Workday projected subscription revenue of $2.515 billion, representing 12% growth, with adjusted operating margin expected at 30%. This guidance marginally exceeded Wall Street’s $2.51 billion estimate.
For fiscal year 2027, the company lifted the bottom end of its subscription revenue forecast to a range of $9.94 billion to $9.95 billion, implying 13% annual growth. This represents an incremental adjustment from the previous range of $9.925 billion to $9.95 billion.
The company demonstrated confidence in its financial position by repurchasing 9.8 million shares for $1.3 billion throughout the quarter. The board subsequently approved an additional $4 billion share buyback program with no expiration date.
Workday closed the quarter holding $3.4 billion in cash, cash equivalents, and marketable securities.
Despite the positive results, sentiment remains mixed on Wall Street. Bank of America maintained its Neutral rating with a $205 price target, noting that while AI initiatives show promise, “reacceleration is still elusive.” The firm reduced long-term growth estimates to reflect a more conservative outlook.
Year-to-date, Workday shares have declined 9.9%, with a 15.3% drop over the trailing twelve months. The stock experienced a brief surge in early August following speculation about a potential private equity acquisition by Silver Lake, though no formal transaction has materialized.
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