$WDAY Lower in After-Hours, Following Earnings Beat and Guide Up

Like CRM, this company will never actually post earnings. They will have great free cash flow numbers and growth, but keen financial engineering with continue to obfuscate the great successes Workday is truly undergoing.

The company just reported great numbers, beating on both the top and bottom line, in addition to upping guidance. Yet, in the after-hours, shares are lower by 4%.

Total revenues were $345.4 million, an increase of 38% from the first quarter of fiscal 2016. Subscription revenues were $280.0 million, an increase of 39% from the same period last year.

Operating loss was $73.6 million, or negative 21% of revenues, compared to an operating loss of $53.4 million, or negative 21% of revenues, in the same period last year. Non-GAAP operating profit for the first quarter was $11.1 million, or 3% of revenues, compared to a non-GAAP operating loss of $2.1 million last year, or negative 0.8% of revenues.1

Net loss per basic and diluted share was $0.41, compared to a net loss per basic and diluted share of $0.33 in the first quarter of fiscal 2016. Non-GAAP net income per diluted share was $0.05, compared to a non-GAAP net loss per basic and diluted share of $0.02 for the same period last year.1

Operating cash flows for the first quarter were $161.5 million and free cash flows were $127.0 million. For the trailing twelve months, operating cash flows were $327.9 million and free cash flows were $188.1 million.2

Cash, cash equivalents and marketable securities were approximately $2.1 billion as of April 30, 2016. Unearned revenues were $926.1 million, a 42% increase from last year.

“We delivered great results and growth across all of our products in the first quarter,” said Aneel Bhusri, co-founder and CEO, Workday. “We continue to see increased customer adoption of Workday Financial Management as well as strong demand in EMEA and APJ as more organizations take finance and HR to the cloud. We are on track to deliver innovative new products — Workday Planning, Workday Learning, and Workday Student — later this year, which we believe will accelerate our momentum based on extremely positive customer feedback and interest.”

The valuation of WDAY continues to compress, as Wall Street ignores record growth and free cash flow numbers. This is a failure on the part of management, unable to properly tell their story. Over the past two years, the stock is down 3.5%. Since they’ve been growing revenues like a weed, the price to sales ratio has collapsed from 20x to 12x. The only software company of comparable size with a price to sales ratio this high is MBLY.