Workday (WDAY) reports quarterly results for the first time since closing its biggest acquisition ever — the $1.55 billion purchase of Adaptive Insights — with analysts focusing on updated guidance in light of the deal.
XPleasanton, Calif.-based Workday reports second-quarter earnings late Tuesday. Analysts estimate revenue growth of 26% to $663 million, with adjusted profit climbing 8% to 26 cents a share.
The company recently added financial software to its repertoire of programs for human relations, payroll and other business functions. Adaptive Insights, acquired Aug. 1, specializes in financial planning software. It provides software for budgeting, forecasting, planning and analysis to financial and sales teams. It serves mostly small-to-mid-sized customers.
Investors seemingly embraced Workday's purchase of Adaptive Insights. a move similar to Salesforce.com's (CRM) acquisition of MuleSoft. The MuleSoft deal in March marked Salesforce.com's biggest acquisition.
"(Workday) partners view the recent acquisition of Adaptive Insights favorably, noting the addition of mature financial planning capabilities fills a much needed functionality gap, creating a more attractive financials value proposition," Morgan Stanley analyst Keith Weiss said in an Aug. 31 note to clients.
Lowering Margins
Analysts expect both the MuleSoft and Adaptive Insights purchases to lower operating margins. Both deals may not be earnings accretive until fiscal 2021, analysts say.
On other key financial metrics, analysts are looking for Workday to report billings growth of 32% to 725 million. Analyst estimate subscription revenue growth of 28.5% to $559 million. Analysts are eyeing Workday's momentum in closing larger, multi-year contracts with Fortune 500 companies, especially for financial products.
The company in 2017 said it would no longer provide guidance on billings, a sales growth metric, as it adopts new accounting rules. However, analysts have been doing their own estimates. And, slowing billings growth has been an issue.
"Healthy customer win activity could boost calculated billings back above 30% year-over-year versus 8% last quarter," a KeyBanc report said.
Workday stock edged up a fraction to 155 on the stock market today. Shares in the enterprise software provider have gained 43% from a year ago.
Shares Extended
Workday stock is extended, having broken out from a cup-with-handle chart pattern in August. Workday stock is up 12% from its pivot.
Other companies in IBD's Computer-Software Enterprise group, such as ServiceNow (NOW) and Salesforce.com, also have rallied. (Check out this New America feature on ServiceNow.)
The enterprise software group is ranked No. 4 out of 197 industry groups tracked by IBD. ServiceNow and Ultimate Software (ULTI) have the highest Composite Ratings in the enterprise software group.
Workday has pushed its way onto IBD's Leaderboard.
Its main rivals include Oracle (ORCL) and SAP. Workday has been phasing out a partnership with ServiceNow, says a Piper Jaffray report.
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The post Workday Guidance Eyed In First Earnings Report Since Big Acquisition appeared first on Investor's Business Daily.
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