'Financials first' conversations rising as Workday aspires to $10 billion run rate

A $10 billion run rate within six years. According to a recent news report, that’s the goal that Workday is setting itself. It’s a bold ambition, but achievable. The firm just turned in its full year fiscal 2019 numbers which saw revenues at $2.82 billion, up 31.7% year-on-year, and expects fiscal 2020 to come in around $3.03 billion.

That said, it’s the kind of sabre rattling prediction that we’re more used to hearing from Salesforce than Workday and CEO Aneel Bhusri was quick to put it in context on yesterday’s post-results analyst call:

First of all, it's aspirational and was internal to our employees to get them excited about our future. We definitely feel like we have the market opportunity to get there. And it's all about the persistent growth rate over the next number of years in terms of how long we could get there. I have a ton of admiration for what Marc Benioff and Salesforce has done in getting to that and now passing that number, and we'd like to be the same.

For the fourth quarter, revenues were up 35.4% year-on-year to $777.4 million, with subscriptions revenue - 80% of total - up 37.5% to $673.5 million. Net losses were $104.4 million, up from $89.1 million the corresponding quarter last year. Revenue from outside the US was up 41% to $184 million and now accounts for 23% of total revenue.

Notable stats from the quarter:

• 2,600 customers in total.
• Workday HCM now used by 40% of Fortune 500 companies and 50% of the Fortune 50, with 10 new Fortune 500 logos added during the quarter.
• New HCM customers include A.P. Moller-Maersk, Caterpillar, Sumitomo Chemical and Wyndham Worldwide Operations.
• Seventy-nine core Financial Management customers added, including 4 new Fortune 500 firms.
• New Financial Management customers include Ryder Truck, Ameriprise and Banner Health.

Bhusri called it the best quarter ever for the financial management offerings, adding that of the 79 new financials customers there was enough of a theme of ‘financials only’ or ‘financials first’ to identify an underlying pattern:

One interesting new trend is that we are beginning to see large enterprise companies now starting their finance and HR journeys with Workday Financial Management. This is a new development and something we view as a positive indication of the growing awareness of our financial management applications and the high levels of satisfaction our finance customers have experienced in the past several years.

That shift doesn’t mean any significant change to go-to-market though, he added:

I think it just means that as we engage with the customer, we should make sure we ask the question, "What is the scope of the project?" and not just default to, "Hey, they're going to lead with HR because that's been the pattern we've known for the last, let's say, five years but probably for the last decade’. If that's changing, we just have to really listen to our customers and our prospects as to where they want to go first.

I think overall, we're in a world of digital transformation. Those are the buzzwords that get used quite often, but it's true. And as the finance organization gets more comfortable with the cloud, and frankly, as our products mature and we continue to have success with deployments, it's very similar to what happened in the client/server wave as well. Client/server started out with products like HR and then got more into mission-critical applications like finance as of the technology matured.

Adaptive help

It’s also presumably no coincidence that this ‘financials first’ pattern has emerged as Adaptive Insights is absorbed into the Workday fold. Bhusri noted:

One of the reasons, I think, we're getting Financials-first conversations is that the Adaptive products are opening the door to the CFO earlier or in some cases, they're opening the door for the first time, and then we can have that broader conversation. So I wouldn't underestimate the power of now having a conversation, not just around core Financials but also around the Planning products from Adaptive and also the Prism Analytics on the analysis side. We can tell a full story around planning, execution and analysis. And that's key for the CFO community and the finance organizations.

In terms of the competitive landscape, it’s Oracle that features most it seems:

I think overall, the cloud momentum that started with Salesforce in the world of CRM then moved to HR with Workday and ServiceNow with IT, is now coming to finance. And so when you look at the viable finance products in the cloud, it's actually a pretty short list. And so as people are looking to transform their finance operations and as part of that move to the cloud, it, frankly, tends to be much more about us and Oracle. And SAP doesn't really have a native cloud story, and so they really don't factor into the conversation as much.

As the firm moves into its 2020 fiscal year, Bhusri remains upbeat about prospects, regardless of any potential macro-economic headwinds:

I was at a conference and saw one of our large financial services customers talk about their view of the global economy. And I tend to really resonate with his point of view. He broke it into three buckets: businesses, consumers and then government. Generally, businesses and CEOs have a positive outlook on their businesses and on the environment.

The global economy continues to move forward at a nice pace. The general global consumer is spending money and generally in a positive frame of mind. The wild card is government, and I don't think this is an environment that many of us really know how to predict. Government has become unpredictable across many parts of the world, and we don't yet know how that's going to impact business or maybe it fades away. We're, I think, in wait-and-see mode….will the government question marks out there actually have an impact on the pipeline?

But businesses are still focused on digitization. Consumers are still spending money. It's really the question now, are these trade wars, some of the other macro environmental things coming out of government going to impact our pipeline? And I think we're in wait and-see mode view rather than having any view right now. Right now, I would say we probably haven't seen it yet, but we're watching it very carefully.

My take

A strong set of numbers and a welcome bold set of targets for the future. The ‘financials first’ trend detected by Bhusri is an interesting potential tipping point and it will be interesting to see how that pans out over the rest of the year.