What Happened?
Shares of enterprise software company Workday (NASDAQ: WDAY) fell 3.6% in the afternoon session after the company reported second-quarter results that, while beating profit estimates, failed to impress on the top line.
The finance and HR software provider reported calendar second-quarter revenue of $2.35 billion, up 12.6% year over year, which was in line with Wall Street's expectations. Adjusted earnings per share came in at $2.21, beating the consensus estimate of $2.12. Despite the profit beat, the market reacted negatively, likely because the revenue figure merely met, rather than decisively surpassed, expectations. Investors may have also been concerned about slowing growth, as the 12.6% revenue increase represents a deceleration from the company's 16.4% compounded annual growth rate over the last three years. The overall results were seen as underwhelming, failing to provide the strong positive surprise needed to boost the stock.
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What Is The Market Telling Us
Workday’s shares are not very volatile and have only had 8 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The previous big move we wrote about was 9 days ago when the stock gained 3.3% on the news that the SaaS sector continued to rally as favorable inflation data bolstered hopes for a Federal Reserve interest rate cut. This optimism was largely driven by a benign July Consumer Price Index (CPI) report, which solidified investor expectations for a Federal Reserve interest rate cut. Following the release of the inflation data, which showed a year-over-year increase of 2.7%, the probability of a rate cut in September surged to over 96%. Lower interest rates are typically beneficial for growth-oriented technology stocks, as they can reduce borrowing costs and increase the present value of future earnings. Adding to the positive sentiment was a 90-day delay in the imposition of higher tariffs on Chinese goods, which reduced trade-related uncertainty for the technology sector.
Workday is down 12.9% since the beginning of the year, and at $219.34 per share, it is trading 21.6% 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 $1,145.
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