Workday (WDAY) keeps working for investors. On news of its third-quarter results, WDAY stock opened about 12% higher, at about $82. Keep in mind that it came public just about a year ago, with Workday stock fetching $28 per share.
Of course, the success of WDAY stock shouldn’t be all that surprising. Why? Because Workday is part of a group of cloud companies that continue to grow at a rapid clip.
Strong Earnings Boost WDAY Stock
In the latest quarter, revenue at Workday spiked by 76% to $127.9 million, while subscription revenues jumped by 82% to $93.9 million. Yes, a big part of the cloud company’s business is selling services. The adjusted loss came to 12 cents per share of WDAY stock, down from 36 cents per share in the same period a year ago.
Plus, the Street consensus was for a net loss of 17 cents a share on revenues of just $117.8 million. So all in all, the performance was the kind of thing to light up WDAY stock.
The outlook was also robust for Workday. For the current quarter, WDAY forecasts revenues of $133 million to $138 million, up from the consensus estimate of $129.1 million. It was a solid beat — and yes, another reason to get investors to pump up Workday stock.
WDAY Stock – Not Cheap, But Still Worth It
Of course, WDAY stock isn’t new to outperformance. Year-to-date, shares of Workday stock have soared nearly 50% — almost double the broader market.
Why has WDAY stock been so hot? Well, the main focus for Workday is on software for enterprise resource planning (ERP), which helps companies manage core functions like HR and financials. While the market is dominated by biggies like Oracle (ORCL) and SAP (SAP), there is a key differentiator for Workday: of course, it’s the cloud. WDAY delivers its software via the Internet, which means lower costs since there is no need for servers and hardware.
There is also the benefit of getting the latest version of the software as well as access to data in real-time. No doubt, the cloud has captured the attention of Wall Street, which has made WDAY stock a darling, as well as other operators like Veeva Systems (VEEV), ServiceNow (NOW), NetSuite (N) and Cornerstone OnDemand (CSOD).
Granted, the valuation of WDAY stock is at lofty levels, trading at about 36 times sales. But this is fairly normal in the cloud space. Besides, Workday has little meaningful competition from startups — it’s pretty tough to come up with ERP software for large companies — and also has a huge market opportunity. The company estimates that the opportunity is about 5,000 companies or so. Yet for now, the customer count is only at about 550.
In other words, there’s much more runway for growth — and WDAY stock is still a buy at these levels. The most recent Workday earnings report is proof of the company’s huge potential.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.