Although the cloud-computing segment represented one of the hardest hit within the broad technology ecosystem, financial and human-capital management software provider Workday (NASDAQ:WDAY) cut through the muck, surging 11% in Wednesday’s morning session. Providing the boost for WDAY stock was a strong earnings performance that beat expectations for the top and bottom lines.
For the third quarter, the software vendor reported adjusted earnings per share of 99 cents atop revenue of $1.6 billion, according to CNBC. Data from Refinitiv noted that analysts anticipated EPS of 84 cents against revenue of $1.59 billion. Following the disclosure, WDAY stock gapped up and continued to incrementally add to its gains. In the early afternoon session, shares were up over 12%.
As well, the Wall Street Journal reported that the Q3 revenue represented a 21% increase on a year-over-year (YOY) basis. Just as importantly, subscription revenue spiked 22% to $1.43 billion. Further, as the WSJ reported, “Workday also said it was raising the low end of its fiscal 2023 subscription revenue guidance to a range of $5.555 billion to $5.557 billion.”
“Workday delivered a perfect ‘holiday cocktail’ for investors,” Evercore Analyst Kirk Materne wrote in a research report today. Materne has an “outperform” rating on WDAY stock along with a $225 price target. At the time of writing, shares traded hands at $161.20.
WDAY Stock Still Faces Broader Pressures
Although the results brought joy to the Street, WDAY stock still faces significant hurdles ahead. For one thing, shares remain underwater on a year-to-date (YTD) basis to the tune of nearly 39%. Therefore, it will need significant upside catalysts to return to pricing thresholds seen last year.
On another note, not every analyst is enamored with WDAY stock. For instance, Barron’s reported that “Guggenheim analyst John DiFucci reiterated his Neutral rating, since he views the shares as reasonably priced. He moved up from a Sell rating just earlier this month.”
Further, investors must be aware of the phenomenon colloquially referred to as buy the rumor, sell the news. For Workday, its human-capital management expertise may run into a brick wall if fewer incentives to manage human capital materialize.
Most pressingly, accelerated layoffs in the tech sector may reduce Workday’s total addressable market. Prominently, reports indicate that Amazon (NASDAQ:AMZN) plans to cut around 10,000 employees from its workforce. Should conditions worsen, client enterprises may reduce their cloud spending or look for cheaper alternatives. Therefore, investors should remain vigilant despite the otherwise impressive performance of WDAY stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.