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Workday May Issue Conservative Outlook

D.A. Davidson’s Jack Andrews maintains a Buy rating on the company, with a price target of $107.

Q3 Expectations

Andrews expects the company to have grown its revenue 31.9 percent year-on-year during FYQ3:17 to $402.5 million, marginally ahead of the consensus and the guidance.

The analyst expects subscription services to report 38 percent revenue growth to $334.9 million, with professional services delivering 8 percent revenue growth to $67.6 million.

The non-GAAP EPS estimate is slightly above the consensus expectations at $(0.02).

“WDAY has met or beaten consensus revenue and EPS estimates in 14 of the 16 quarters it has been public, missing the Street EPS estimate in FY2Q17,” Andrews mentioned.

In addition, billings growth during Q3 is likely to have been more or less on par with revenue growth, growing 31.3 percent year-on-year to $446.2 million, in line with the guidance.

Near-Term Catalyst

The analyst believes Workday is well positioned to benefit from two near-term catalysts.

“First, we believe pending new revenue recognition rules are increasing interest in WDAY's FM product,” Andrews stated.

Secondly, the analyst believes the recent NetSuite Inc NYSEN acquisition by Oracle Corporation ORCL is likely to provide Workday with a temporary boost, especially in the mid-market, “as customers pull back from committing to NetSuite given the uncertainty.”

Andrews expects the acquisition to strengthen Workday’s competitive position, as least in the near term.

Oct 2016Canaccord GenuityMaintainsBuy
Sep 2016OppenheimerMaintainsOutperform
Sep 2016Brean CapitalMaintainsSell

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