Why can Workday continue its enormous growth?Category: Workday HCM Posted:Jul 09, 2018 By: Alvera Anto
Workday has defied all odds to capture the market for Cloud products on a global scale. Its current momentum is backed by sound research and great technology. There have been no missed steps in Workday’s growth ever since its inception by Aneel Bhusri who is one of the most respected technologists and innovators in the tech space today.
The Fiscal year 2018 for Workday has been great for the 4th quarter. The momentum is expected to continue well into the year 2019. It is doing very well going by the salaries record and the economic statistics. Workday’s press releases portray quiet confidence to focus on the task at hand and a firm grasp on the future.
Workday’s Billings and Wall Street Analysis
The Workday is said to have had an excessive quarter across every financial measure. Billings are considered one of the primary metrics used by Cloud vendors. Workday has surpassed Wall Street’s expectation of billings by 10%, which is a huge deal. This is also the main reason for Workday’s hike in the share price. The complete incomes for the fourth quarter were 582 million dollars, which is an increase of 32% year over year. Revenues for the full fiscal year were 2.1 billion dollars, which is an increase of 36% year over year. Workday’s revenue comes mainly from subscriptions ranging to 84%, with the remaining revenue streaming in from Professional service.
The Workday is working with an ecosystem composed of partners to offer implementation services as subscription revenue is the main source of revenue for them. And also mentioned earlier is a major business metric for success. The billing, the stock price will continue to increase with the continuous growth in the Workday, as the market is feeding on the trend for cloud technologies. Wall Street analysts have said that there is uncertain variation in its future planning. Workday counters this analysis by saying that the billing metric is actually tangential to its core statistics and their business model that is recurring revenue.
Non-Generally Accepted Accounting Principle (GAAP) Profit is seen to increase despite the loss of GAAP profits to some extent. GAAP losses are due to share-based compensation. Workday’s HCM product has seen progressive growth even though its financial product grew over 50% with comprehensive product growth pegged at 53% and above considering revenue from outside the USA. The CFO of Workday projects a similar growth trajectory in the year 2019. She says the fiscal year 2019 will see subscription revenues rising from $2.265 to $2.280 billion or a 28% growth. This means Workday will become the swiftest company to exceed $2 billion in subscription revenue.
Even though Workday has good overall growth, Wall Street is harping on Workday’s future billing statistics. Cisco has even mentioned that when it comes to earnings, it is on a tangent to the actual revenue that is identified. And such a metric is very hard to forecast with certainty. A major factor that should be considered is an impact of ever-increasing numbers of sales within large enterprises. But Workday CEO Aneel Bhusri has said that Workday is open to provide billing flexibility if it will help clinch a deal.
Workday has more than 2,100 overall customers, with 175 using HCM and 2 using FI and listed in the Fortune 500. It added 58 new FI customers in Q4, which represents a growth rate of 45% YoY and boosts their total FI customers to 450. Also, 70% of HCM customers and 60% of FI customers are currently in production.
HCM is the main product line for Workday, but as an enterprise, they are also making good progress with their product line based on financial management. Workday has quoted that Oracle is the only other company providing a solution that is fully integrated in terms of Cloud ERP offering. Oracle has corroborated this by saying that Workday is their chief competitor in the Cloud ERP space. It is clear that customers thinking of migrating to a cloud ERP solution will have to choose between Workday and Oracle.
The lifeblood of any organization is its employees. This being said, Workday was coming at number 7 on the Fortune Magazine list of 100 best companies to work for in North America and number 2 in Ireland which is their European headquarters. The employee strength of Workday is equal to 8200 with an increase of 1600 new employees in the year 2018 alone. Workday has always stressed – the importance of work culture and offering a great place to work in order to attract and retain the best talent. Only then will a company be able to provide the best services to its customers say Workday. It is such exceptional employee growth rates and awards and recognition in the same category that prove the success of Workday and helps in differentiating it from its competitors. The Workday is focused on employee satisfaction and such metrics can serve as a constant measure for the organization to regulate and monitor as they continue to grow to new heights.
The Year Ahead – 2019
Workday leadership is ready with its plans for growth for the year 2019 with detailed plans for 28% growth. Workday expects growth of 29% in the first quarter in 2019 the financial year. When one considers the year, Workday has just experienced and the quarterly growth, its sales team will be presented with aggressive numbers and difficult targets to achieve. The Workday is of the belief that the success of its customers will enable them to continually pursue and close deals and enhance their win rate. Workdays win rate is in the mid-market, which stands for its core business and accounting for half of the total business; and the trend for this keeps going up.
The Workday is powered by winning market strategy and vision. But the challenge in front is a work, consistency in terms of their growth, customer satisfaction and retention, and high subscription renewal rates and more. The Workday will also have to convince customers to adopt brand new solutions that are products such as prism analytics and the latest Cloud platform. During the analysis of Workdays earnings, the company stressed not only on fresh customer acquisitions but also on long-term contract economics. By this Workday refers to future price increases and payment flexibility during the renewal period. The current market scenario has customers considering a variety of Cloud solutions including Workday and Oracle. This will keep the customers a chance to establish a baseline for budgeting and expected performance.
Cloud Financials growth trajectory
The current quarter saw HCM deals clinched by PNC Bank General Electric Banco Santander and Chevron USA among others. There was also financial clientele including Quicken Loans and Family Mutual Insurance. But according to Bhusri, there is a new customer in the market who is in the food business and their order volumes have surpassed all previous subscription bundles. This means, Bhusri says, that Workday has achieved immense scalability even in non-target sectors for them as an enterprise.
Workday has amassed staggering 58 brand new customers for financing with the fourth quarter being the best ever for the current product lineup. Planning is also on the fast track to execution with 60 customers signing up for future releases. Since the Cloud is now viewed as mainstream, CFOs across domains are looking at Cloud Financials with Workday being the top pick for most such CFOs. Finance enterprises are also looking to change into more efficient business partners in the business. This means getting better at analytics and planning. It is no longer sufficient to upgrade to a new accounting system, and enterprises require a holistic change which CFOs can use to transform the financial enterprise.
Workday Market Factors
Workday has a favorable competitive landscape as there are really only two primary players. According to expert analysts across the world, SAP does not have a Cloud financial offering. So, the option of comparison goes right out the Window. Therefore, all that’s left is Workday and Oracle – with each of them having to contend with a massive market. Workday CEO Bhusri says that in the future, business verticals will become more of a focus area for the company. And anticipating this, Workday already has strategies ready for technology, healthcare, education, and government, emerging retail and financial services.
Bhusri goes on to say that Workday will turn more industry-oriented in the next year and a little beyond. This will range from the go-to-market organization and be messaging. And Workday products will also show traits which are industry tailored-capabilities and features needed by the customers. Bhusri also has said that Workday views customer reference-ability as a valuable and ongoing Workday asset. Customer success and proof points are critical in situations where customers are massive Fortune 100 enterprises; in such cases, cost takes a back seat to efficiency, speed, and sheer quality. Such enterprises will not be able to afford failures at the rates of business they are going through. Massive investments will be at risk. Such massive enterprises have a major transformation or mission-critical platform issues. Workday is also known to have a high customer satisfaction index, this is what drives and sustains their business and it is doing everything possible to keep it that way.
There are a few factors which hint at the unmistakable success and sustainability in Workday in the years to come:
- Robust progressive growth as a result of Workday’s customer satisfaction metrics and its focus on reference ability.
- A sustained and progressive expansion of Workday’s product platform to explore and develop financial and planning/analytics along with HCM at the same time.
- A unique proposition that stresses a fresh, enterprise-centered role for CFOs and even
There are several other things that Workday is doing right such as its recent management changes, investments in AI, along the Workday Cloud Platform development. The CEO says its Cloud Offering will be released in a few months with Workday Rising and as a complete product. This means Workday has chalked out a great plan for evolving as an enterprise with action plans overlapping with each other. As several analysts have already said, unlike Oracle or SAP, it has adopted a market outlook known as cautious optimism. In Bhusri’s own words, he always gets nervous when everyone is being so optimistic! Analysts have said that Workday’s subscription revenue could shoot up to $8 billion by the year 2025 turning it into one of the quickest growing companies in its domain in the market.
Workday’s Adaptive Insights Acquisition
In a deal valued at $1.55 billion, Workday has agreed to acquire Adaptive Insights. This deal includes the assumption of around $150 million in unvested equity issued to Adaptive Insights employees. This counts as a considerable premium for the enterprise.
Adaptive Insight is an enterprise that was founded in the year 2003. It is a company that develops Cloud-based financial management software. The price range for its IPO of around 8.2 million shares was between 13 to 15 dollars per share. If Midpoint pricing would have been considered and it would have raised 114.8 million dollars at evaluation estimated at 620.3 million dollars. Its valuation would have given a completely diluted market value of 705 million dollars. The Workday’s appraisal is roughly 2.2 times the anticipated post-initial public offering market cap. This deal is similar to Cisco’s move on AppDynamics. AppDynamics was bought for 3.7 billion dollars on the eve of its IPO. The acquisition of Adaptive Insights represents a significant doing for Onset ventures which is an organization that has supported Adaptive Insights since the start.
The acquisition of Adaptive Insights by Workday is the eleventh since the start of the year 2007. The source of this is the pitchbook platform which says this is the most expensive acquisition of this time period by a large margin. 2016 saw Workday acquire Platform, which is a data management software firm for 200 million dollars. Global merger and acquisition activity in the human resource tech space has gained Momentum since the year 2007. There has been a total of 348 mergers and acquisition since then.
Workday acquisition of adaptive insights is significant because of the robust employment scenario in the USA. The unemployment rate has been its lowest since the year 2000 in the USA coupled with signs of wage increases after a prolonged period of stagnation. Workday has made this acquisition to gain a suite of business planning products to offer its customers advanced and modern modeling capabilities. Such tools can operate as an option to planning which is spreadsheet-based planning and modeling in similar terms. Workday has ongoing efforts to meet enterprise client needs by leveraging central planning through this acquisition. This is especially true due to the core general ledger which is used to drive corporate decisions. Adaptive Insights as a company has revealed considerable Year over Year growth in total revenue.
Going by what Workday CEO Bhusri says, cautious optimism and a strong emphasis on customer satisfaction will carry the company into higher growth numbers in the years to come. With Workday already implementing its rollout of products for the next generation of Cloud products, there is no doubt it will sustain and amplify its massive growth in the next decade.
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