What Happened?
Shares of finance and HR software company Workday (NASDAQ: WDAY) fell 11.4% in the afternoon session after the company reported underwhelming first-quarter 2025 (fiscal 2026) results: full-year subscription revenue guidance of 14% growth remained unchanged, but the market typically looks for upside in this metric, and in-line guidance failed to inspire confidence. Billings also missed.
The softness was masked somewhat by a narrow revenue beat and stronger-than-expected Q2 subscription revenue guidance. Gross margin also edged up slightly, but GAAP operating margin declined due to $166 million in restructuring expenses, including severance and office closures. Still, on an adjusted basis, the non-GAAP operating margin rose slightly year-over-year, reflecting improved cost discipline beneath the surface. That improvement helped lift earnings above Wall Street's estimates.
Overall, it was a mixed quarter for Workday, operationally sound with margin gains and modest top-line progress, but overshadowed by a cautious outlook.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Workday? Access our full analysis report here, it’s free.
What The Market Is Telling Us
Workday’s shares are not very volatile and have only had 8 moves greater than 5% over the last year. Moves this big are rare for Workday and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 29 days ago when the stock gained 5.1% on the news that stocks extended their rebound, led by strong gains in the technology sector, as renewed optimism surrounding U.S.–China trade negotiations lifted investor sentiment.
Contributing to the bullish sentiment was a standout earnings report from enterprise software leader ServiceNow, which topped Wall Street's expectations on both revenue and earnings. More importantly, the company's remaining performance obligations (RPO), a key forward-looking metric for future revenue, also exceeded forecasts, giving investors confidence that enterprise customers are not pulling back spending amidst uncertain macro. The optimism was further reinforced by solid results from Texas Instruments and Lam Research. Their performance was especially encouraging for semiconductor stocks, which have been under pressure due to their exposure to global trade tensions. These results suggested that, despite macroeconomic uncertainties, demand in key tech verticals remained resilient.
Workday is down 4.6% since the beginning of the year, and at $240.30 per share, it is trading 14.2% below its 52-week high of $279.91 from December 2024. Investors who bought $1,000 worth of Workday’s shares 5 years ago would now be looking at an investment worth $1,427.
Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading close to all-time highs, we prefer a lesser-known (but still profitable) semiconductor stock benefiting from the rise of AI. Click here to access our free report on our favorite semiconductor growth story.
