Workday Outperforms Software Peer Intuit After Earnings

A number of software companies reported on Tuesday after the market close, including software firms Workday (NASDAQ:WDAY) and Intuit (NASDAQ:INTU). With a market capitalization of both companies exceeding $60 billion, investors were eager to hear from the management of these companies on the demand for software solutions amid a high interest-rate environment.

Workday Delivers a Clean Earnings Beat

Workday reported financial results for the third quarter that beat the average analyst estimate, sending its shares over 7% higher in early Wednesday trade. Adjusted earnings per share surged from 99 cents for the same year-ago period to $1.53, easily surpassing the average analyst estimate of $1.40.

Revenue surged 17% YoY to $1.87 billion, just ahead of the consensus of $1.85 billion. Subscription revenue was up 18%, in line with estimates while the Professional Services sales fueled the upside – up 4.7% YoY and ahead of the consensus.

“The momentum across our business is palpable, powered by our AI innovation, strength in full platform deals, expanding partner ecosystem, and international growth – with EMEA surpassing $1 billion annual recurring revenue in the quarter,” said Carl Eschenbach, co-CEO at Workday.

Workday also said its adjusted operating margin expanded by as much as 510 basis points from the year ago, coming in at 24.8% vs. 23.5% expected. The total subscription revenue backlog for the period reached $18.45 billion, which is a significant increase of 30.9% compared to the same period last year.

The 12-month subscription revenue backlog stood at $6.05 billion, while the 24-month subscription revenue backlog reached $10.58 billion, showing YoY growth of 21.9% and 22.7%, respectively. The company also managed to surpass 5,000 core Workday Human Capital Management (HCM) customers in Q3.

Following the Q3 outperformance, Workday raised its full-year subscription revenue outlook to $6.598 billion, up from the prior forecast range of $6.57-6.59 billion offered back in August.

During the quarter, Workday announced new products for financial and human capital management with a specific focus on generative and conversational AI. The improvements include multiple GenAI updates, new AI capabilities in ‘Workday Adaptive Planning,’ as well as AI-focused updates in ‘Manager Insights Hub’ and ‘Workday Extend’ software tools.

“Our strategy to build AI directly into the core of our products continues to resonate with our customers and is fueled by our platform strategy, unrivaled dataset, and emphasis on being human-centric,” added Aneel Bhusri, co-founder, co-CEO, and chair at Workday.

Workday shares were up almost 41% year-to-date through Tuesday’s close.

Intuit Delivers Mixed Results

Intuit shares were mostly flat in early Wednesday trade after the financial management software company reported results for its first fiscal quarter. While top- and bottom-line results easily topped analyst estimates for FQ1, Intuit only reiterated a full-year outlook, signaling cautious demand for its products.

Intuit said it earned $2.47 per share in the first fiscal quarter, crushing the expected $1.98 and $1.66 reported for the same year-ago period. Revenue increased by 15% to $2.98 billion, about $100 million more than the Street expectations.

“We had a very strong first quarter, starting our fiscal year with momentum,” said Sasan Goodarzi, Intuit’s chief executive officer. “With data and AI core to our strategy, we’re accelerating innovation across our global financial technology platform to power the prosperity of consumers and small businesses.”

Sales in the Small Business and Self-Employed Group rose 18% to $2.3 billion, while Online Ecosystem revenue was up 20%. Credit Karma, the company’s flagship product, generated $405 million in quarterly sales, down 5% YoY. Intuit blamed the decline on “headwinds in personal loans, auto insurance, home loans, and auto loans.”

For this quarter, Intuit said it expects revenue to grow 11-12% with adjusted earnings per share seen at $2.28 (up or down 3 cents), a significant miss relative to the consensus of $2.56. This way, the FQ2 outlook practically erased the upside from the FQ1 earnings beat.

All-in-all, the company only reiterated its full-year outlook, which sees revenue in the range of $15.89 billion and $16.11 billion, in line with the consensus. The adjusted EPS is still expected between $16.17 and $16.47 while the Street consensus sits at $16.36.

Workday also said it repurchased $603 million worth of shares during the quarter, leaving $3.2 billion remaining on its share repurchase authorization. Moreover, the Board approved a quarterly dividend of $0.90 per share, reflecting a 15% increase compared to the same period last year.

With Intuit shares up about 45% YTD, investors were looking for stronger top-line growth, which is still being hampered by soft demand for Credit Karma. For this segment, Intuit said it still expects to record a flat growth in FY24, up or down 3%.

Summary

Financial and human resources management company Workday easily topped analyst expectations for its third quarter, sending its shares higher on Wednesday. The Q3 earnings beat prompted an outlook raise, contrary to peer Intuit, which just reiterated its full-year guidance despite a strong FQ1 beat. Intuit blamed headwinds in certain sectors on the soft outlook for this quarter, ultimately leaving shares in the penalty box in the near term.