Workday’s second quarter performance aligned with Wall Street’s revenue expectations, while non-GAAP profitability came in above estimates. Despite this, the market reacted negatively, reflecting investor concerns about external pressures and the sustainability of recent momentum. Management highlighted strong customer adoption of AI-driven solutions, particularly the Workday Illuminate suite, as a key driver for the quarter. CEO Carl Eschenbach pointed to robust demand across verticals and emphasized that over 70% of customers have adopted AI features, with net new deals increasingly including these products. The quarter also saw notable traction in international markets and medium enterprise segments, as well as significant wins in the public sector and healthcare. However, management acknowledged that certain areas, such as state and local government and higher education, are facing funding headwinds, which tempered overall enthusiasm.
Is now the time to buy WDAY? Find out in our full research report (it’s free).
Workday (WDAY) Q2 CY2025 Highlights:
- Revenue: $2.35 billion vs analyst estimates of $2.34 billion (12.6% year-on-year growth, in line)
- Adjusted EPS: $2.21 vs analyst estimates of $2.12 (4.5% beat)
- Adjusted Operating Income: $680 million vs analyst estimates of $657 million (29% margin, 3.5% beat)
- Operating Margin: 10.6%, up from 5.3% in the same quarter last year
- Billings: $2.39 billion at quarter end, up 14.6% year on year
- Market Capitalization: $61.33 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Workday’s Q2 Earnings Call
- Kash Rangan (Goldman Sachs) asked about potential disruption from AI startups and the sustainability of Workday’s seat-based model. CEO Carl Eschenbach responded that concerns are “overblown” and pointed to Workday’s strong customer base and high AI adoption as protective factors.
- Kirk Materne (Evercore ISI) questioned whether macro challenges or tariffs were impacting the international or SLED (state and local government, education) segments. Eschenbach acknowledged some headwinds in SLED, especially higher education, but noted strong performance in major European markets.
- Mark Murphy (JPMorgan) inquired about the motivation for forming Workday Government as a subsidiary and its implications for federal contracts. Eschenbach explained it was driven by agency requirements for higher security and dedicated focus, which has been well received by U.S. government clients.
- Brad Zelnick (Deutsche Bank) asked for strategic rationale and financial details behind the Paradox acquisition. Eschenbach and President Garrett Katzmeyer highlighted its importance for expanding AI-powered recruiting capabilities, while CFO Zane Rowe described the deal as larger than recent acquisitions with expected medium-term synergies.
- Derrick Wood (TD Cowen) probed the sustainability and growth potential of the partner channel. Eschenbach said the channel accounted for over 20% of net new ACV and is driving both innovation and deal flow, with expectations for continued expansion.
Catalysts in Upcoming Quarters
In the coming quarters, our analysts will closely monitor (1) the pace of AI product adoption and its impact on customer retention and upselling, (2) Workday’s progress in expanding its international footprint, especially in India and Japan, and (3) developments in the federal sector following the launch of Workday Government. The integration of recent acquisitions and sustained partner-driven deal flow will also be important indicators of execution against strategy.
Workday currently trades at $228.90, in line with $227.64 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).
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