Workday shares fell 8% after the group reported its Q3 figures. The rise of AI, although central to its strategy and now embedded in almost all new contracts, is not entirely reassuring. The pace of organic growth is worrying, and the results reveal a few minor weak spots.
Q3 revenue rose 12.6% to $2.43bn, 92% of which came from subscriptions. However, in some segments, such as the public sector and higher education, which depend on federal funding and whose projects have been postponed because of the shutdown, growth is slowing. Full-year targets are largely driven by the acquisitions of Sana and, to a lesser extent, Paradox.
Regarding AI, it has now become a key driver of strategy. Three quarters of new contracts include at least one AI module, and these offerings add 1.5% to annual recurring revenue (ARR) growth. However, the problem is that this technology creates as much ambiguity as it does potential. The market is looking for the arrival of new players. Some clients are slowing their decision-making because they still do not yet know exactly how the sector's future will take shape.
On a more positive note, clients continue to increase their headcount. The company is offsetting potential pressures (pricing policy, economic weakness, inflation, etc.) by broadening its portfolio. Targets through 2028 have been confirmed (13% growth in 2027 and a 12%-15% range in 2028), along with the ambition to make further acquisitions (which the balance sheet easily allows, given the low level of debt) and to gain market share outside the US.
However, Workday is still an expensive stock, trading at over 70x this year's profits. At that price, there is no room for error.
