Reduced losses, soaring revenues and a jump in enterprise customer win rates against SAP and Oracle, but despite that, Wall Street was somewhat cool on Workday’s numbers yesterday.
The firm turned in a net loss of $64 million for the first quarter, compared with a comparable year-on-year net loss of $80.6 million, on revenues of $479.9 million, up 39% year-on-year. Subscription revenue was $399.7 million, up 43% from a year ago, while non-US revenues were up 58% to $97 million, 20% of total revenue.
CEO Aneel Bhusri said:
Our first quarter of fiscal year 2018 was one of our strongest quarters to-date. Indeed net new ACV experienced our highest year-over-year growth rate in almost three years.
New HCM customers in the quarter included Target and Puma, while go-lives included Quantas Airways:
[Quantas] became a customer in 2016 and went live after nine months project, covering all 45,000 employees and contractors in 26 countries, a special kudos to their great effort and excellent project team.
Target is an interesting win as Bhusri noted:
Historically, retail has not been one of the industries, that’s been an early adopter of new technology. It’s been historically technology and financial services, the high-tech and the fin-services worlds have been early adopters. So now as [cloud is] getting to some of these markets, like healthcare and retail. I think it's telling you that we’re moving into another level of adoption of HR and the cloud.
On the financial management front, Bhusri cited 29 new wins, including ncluded Nasdaq, and Adventist HealthCare and Nuffield Health the largest not-for-profit healthcare provider in the UK. Nuffield got some particular attention from the Workday CEO as a positive proof point:
Nuffield Health in the UK is a great data point. It's a very large healthcare organization in the UK and they subscribed to all of our HR and financial products. So it's not a medium size, it's a large enterprise that chose us for finance in the UK, and I think that’s a good sign and a good start to selling financials outside the US.
He also pointed to a positive start to the second quarter with existing HCM customers 21st Century Fox and CNA Financial Corporation expanding their investment to include the financial offerings. This is indicative of momentum around the financial space, suggested Bhusri, although parity between the two main revenue streams remains some way off:
We're beginning to see that [financial management] market move and that market is bigger. At the same point though, the HCM market has a lot of legs in front of it and if you look at the reacceleration in subscription growth rate, that's still primarily driven by HR. HR needs to slow down for finance to reach parity at some point and we're not seeing that. We don't want to see that, but I'd say it's clearly down the road. But now this finance business is becoming more predictable and it's growing faster, but the HR business is really holding its own right now.
In terms of the competive landscape, the ‘traditional’ rivals are still in play, said Bhusri:
Our win rate against both SAP and Oracle has been consistently high and I think it will continue to remain consistently high.
He also had some interesting comments to make on NetSuite, now part of Oracle’s cloud portfolio at the mid-market level, but not so visible on the Workday radar, according to Bhusri:
Our win rate is the highest it’s been against NetSuite in some time. At the same point the number of competes against NetSuite dropped pretty significantly. So I do think that they are in some disarray over there.
But it wasn’t a just a win or kick-out message from Bhusri as he cited the learning market as a case in point:
I think in some places we're replacing some of the best degree players, and in other places we're co-existing for the time being. We're not really necessarily focused on replacing, we're focused on delivering learning to our customer base, if they chose to replace an existing system, great. So I know we've replaced SuccessFactors Learning quite a few times. I suspect that we're replacing Cornerstone in some places, in other places we've partnered with Cornerstone.
A solid start to fiscal 2018 for Workday. Wall Street’s somewhat muted response is more attributable to over-excited expectations. Workday may well be a victim of its own success here, something we’ve seen from time-to-time at Salesforce among others.