Workday stock dives as fiscal 2026 guidance disappoints despite earnings beat

Workday (NASDAQ:WDAY ) reported better-than-expected third-quarter earnings and revenue on Tuesday, but shares tumbled more than 10% in premarket trading Wednesday as the company's subscription revenue guidance fell short of market expectations. 

The enterprise cloud applications provider posted adjusted earnings per share of $1.89, surpassing the analyst estimate of $1.76. Revenue for the quarter came in at $2.16 billion, beating the consensus estimate of $2.13 billion and marking a 15.8% increase YoY.

Carl Eschenbach, CEO of Workday, commented on the results, stating, "Workday's solid performance in Q3 reflects the trust our customers place in us across industries, the global momentum around our AI-driven innovations, and the strength of our partner ecosystem."

Despite the strong quarterly performance, investors seemed to focus on the company's outlook. Workday forecasted fourth-quarter subscription revenue of $2.03 billion, compared with consensus projection of $2.04 billion. 

Moreover, the company said it expects fiscal 2025 subscription revenue to be $7.70 billion, also below the $7.72 billion expected by analysts. 

Notably, the subscription growth for the fiscal 2026 was set at around 14%, which RBC Capital Markets analysts said "was disappointing to see following a recent reset of growth targets."

"Overall, we view near-term headwinds as primarily noise and our long-term thesis remains intact," they noted. 

Separately, Deutsche Bank (ETR:DBKGn ) analysts said they see an upside to fiscal 2026 numbers "and would be buying the dip." 

The company reported that its 12-month subscription revenue backlog was $6.98 billion, up 15.3% from the same period last year. Total (EPA:TTEF ) subscription revenue backlog reached $22.19 billion, increasing 20.3% YoY.

Workday's operating cash flows were $406 million compared to $451 million in the prior year. Free cash flows were $359 million, down from $391 million in the same quarter last year.

Senad Karaahmetovic contributed to this report. 

Source: Investing.com