Workday (NASDAQ: WDAY) stock price is up 30% from the recent low and will head higher because of its results, operational quality, and analysts' sentiment. The combination has the market on track to retest the all-time high soon and potentially set a new all-time high by year’s end. Because the subsequent earnings reports are expected to echo and build on the Q2 strengths, this stock could move to an all-time high by year’s end and sustain a rally well into 2025. In that scenario, the stock price could advance well above $400 by the end of 2025 as its AI-powered HR and cash flow management services gain business traction.

Workday's Beat-and-Raise Quarter Lifts Market Sentiment

Workday had a solid quarter in Q2, growing revenue by nearly 17% to outpace the consensus reported by MarketBeat.com by 480 basis points. Strength was seen in all geographic regions and business sizes, particularly from large clients. Subscription revenue, which accounts for more than 91% of the business, is up 17.2% and is expected to continue growing at a high-teen pace for the foreseeable future. Retention is also high, exceeding 95%, because the ERP solutions drive results. 

Margin is another area of strength, with GAAP and adjusted operating margin widening above forecasts. The GAAP margin widened by 330 basis points while the adjusted widened by a smaller 130 bps to nearly 25%. The critical takeaways are that the adjusted $1.75 is up 22.4% YoY, outpacing the topline growth by more than 500 basis points, and the cash flow is robust. The company’s operating cash flow increased by 35% to over 25% of the revenue, with free cash flow at 90% of cash flow. The FCF margin is about 24% of the revenue and up 43% YoY, helping sustain balance sheet health while building shareholder value. 

The guidance is solid and likely cautious. The company forecasts subscription revenue to grow by 16% for the year in Q3, with adjusted operating margin widening to 25.25%. The guidance is likely cautious due to the backlog details, which include a 20.9% increase in total backlog and a 16% increase in long-term contracts. Additionally, new collaborations with Equifax and Salesforce promise to deliver results now and over the long term. Equifax will use Workday’s services to speed up the employment and income verification process, while Salesforce will use them to create personalized AI assistance for employee onboarding processes. 

Workday Builds Value for Shareholders

Workday uses its cash flow to build shareholder value by growing its business, repurchasing shares, and improving equity. Balance sheet highlights from Q2 include a cash reduction offset by increased long-term assets and decreased liability. The net result is a 3% increase in shareholder equity in addition to the 12% gain posted last year. The company is sufficiently capitalized to continue with plans regarding leverage and financial health. It is in a fortress position with total liabilities less than 1x equity and debt less than 0.5x cash. 

Analysts' response to the report is mixed but bullish overall. MarketBeat tracks 12 price target revisions: ten upward, one reiterated, and one lowered. The reiterated and lowered targets align with the high end of the target range, as do the remainder. Consensus implies a 10% upside for this Moderate Buy-rated stock; the range’s high end adds another 25% and is 25% above the current all-time high.

The technical action is promising. The market moved strongly from its low, creating Three White Soldiers, which showed a strong market with a high likelihood of advancement. Today’s market is consolidating at the top of the movement, with bullish indicators pointing to the continuation of the near-term trend. Stochastic and MACD show bullish crossovers with ample room to run, so the movement could quickly retest the all-time highs near $310.