Workday CEO Aneel Bhusri on medium enterprise opportunities, HR market consolidation and Coronavirus precautions

Profile picture for user slauchlan By Stuart Lauchlan February 28, 2020
Summary:
The global sales kick-off conference has been hit by the Coronavirus scare, but it's business-as-usual for Workday with strong Q4 numbers to close off its current fiscal year.

Aneel Bhusri closeup at Workday Rising 2019 740px

Workday turned in better than expected numbers for the year end with Q4 revenues up 23% year-on-year to $976.3 million with an operating loss of $146.1 million. Full year revenue was $3.63 billion, up 28.5% year-on-year, with an operating loss of $502.2 million. 

Other stats of note, cited by CEO Aneel Bhusri: 

  • “Over 3200 customers” as of year end. 
  • 97% customer satisfaction rate.
  • 11 new Fortune 500 customers added during Q4. 
  • 45% of the Fortune 500 as HCM customers, including 60% of the Fortune 50.
  • Over 70% of HCM customers  are in production.
  • 90 new Financials customers added in Q4, the most in one quarter to date.
  • New HCM customers include Spanish bank BBVA, Southwest Airlines and Wells Fargo Bank. 
  • New financials customers include KeyBanc, Beth Israel Lahey Health, Dun and Bradstreet, and West Virginia United Health System.

The HCM market is still evolving, said Bhusri, pointing to mid-market opportunities ahead: 

The large enterprise market is alive and well for HR. But, we continue to gain and see growth in the medium enterprise business for HR and there's still a ton of greenfield opportunity in that medium enterprise market across the globe. So, as we head into this year, I think we're thinking about high teens growth for HR. I think that's what we've been forecasting. And I think it's going to hold up. I'm not necessarily focused on the next 12 months. I think longer term, we'll just have to understand how that market matures and what we can do to come up with more add-ons to continue the growth in that marketplace?

The medium enterprise market outside of the US is a huge opportunity, he added: 

I would definitely say the biggest opportunity, at least in my mind, is bringing the medium enterprise solution to the rest of the world. We've been doing that in the past 12 months, when we brought the medium enterprise offering - which is a different pricing and packaging and lower cost services -  we've taken it to places like the UK. A lot of the rest of the world is a medium enterprise marketplace. So that's a big opportunity and it's largely a greenfield opportunity. I combine that with [the fact that]  we're still largely under-penetrated in almost all parts of the world outside the US where the market was first hot for cloud.

And the medium enterprise market will also power the trend towards buying HCM and Financials as a suite, but will take time to become a norm, he predicted: 

No question that the suite market is picking up today. I think one of every four customers has both product lines. What we saw in the fourth quarter for another quarter was a bunch again, of Financials-first customers and that's a great sign for us. That means our financial products are winning on a best of breed basis, even without the leverage from the HR marketplace. I still think for the foreseeable future, large enterprises or the mega enterprises, they will buy HR and finance separately. That's just the way they've done it historically. With the medium enterprise, increasingly it is buying HR and finance together and that's a really powerful trend for us.

M&A

Despite the recent flurry of M&A activity in the HCM space - via Cornerstone’s purchase of Saba as well as Ultimate Software’s merger with Kronos - Bhusri doesn’t see shifting competitive market dynamics having a negative impact: 

[Cornerstone and Saba], don't really see any impact on us. We have displaced both of those learning products over time. I don't really see anything except upside for Workday on that one. As it relates to Kronos and Ultimate, time will tell. I have a lot of respect for Aron. I respect for the Ultimate team. I think bringing together two companies of that scale and that in different cultures is not an easy thing to do. But again, you know, Aron [Ain] is a proven, excellent CEO. The Ultimate team was strong. So time will tell. It's definitely not a negative. There'll be some disruption that could give Workdays some benefits, but we're not going to count on that.

It’s still the ‘usual suspects’ that turn up in bids, he added:

Without getting into the deal by deal basis, the two major competitors we see on everything are SAP and Oracle for Financials. The more cloud-centric opportunities favor Workday. And if there's a second one we see it's Oracle. The more cloud people are looking at, SAP tends to fall away. So we will have to talk account by account. As the cloud continues to mature in the finance marketplace, I think we'll see more of Oracle than we will of SAP.

On the subject of acquisitions, Q4 was the  first quarter with Scout RFP as part of the Workday team. Bhusri said this was off to a strong start, but that the possibilities were enormous:

There's definitely a ton of potential. And as we've gotten smarter about the spend management market and particular with Scout RFP, first of all, they had a great first quarter as part of Workday, really a great team. But the dollars that flow through sourcing are just massive. Even at Workday, the amount of money that goes through the procurement organization is huge.

I do think there's a chance to build a differentiated solution in the short term that is more, Scout as a standalone solution plus as part of our suite. But over time you can see our procurement suite be a best-in-breed, best-in-class suite. I think the markets only going to grow and it's a really exciting market opportunity for us. Can it mimic recruiting? Time will tell. I think what it can do is be a great driver of financial sales. I think financial sales can be a great driver of the spend management marketplace. Every company on the planet has to manage their spend effectively, so it is a truly global opportunity.

Coronavirus

The earnings announcement was perhaps overshadowed by the firm’s decision to cancel next week’s planned sales kick-off conference in Orlando due to the Coronavirus crisis. Three thousand attendees had been expected to attend the event which will now be conducted digitally, something that’s likely to become  more common in the coming months. Bhusri explained that while the risk in the US was not felt to be high, there were other considerations: 

Our Asia Pacific folks could not attend. And then with the outbreak in Italy - we actually had a joint meeting with some of the UK and Italy team - we felt like just [having] the US team, that's not really inclusive enough, not really the way Workday would go forward with a global sales kick-off meeting. So we're going to wait until we can get all the people together in person, after this outbreak gets past us. In the meantime we're going to do things virtually. 

We'll replicate as much of it as we can virtually and at the appropriate time we'll get the people together in person. There will be in-person meetings across the globe, it just will not involve travel. What we want to do is minimize that while we're in this time of uncertainty, minimize that international plane travel.

My take 

A solid end to the year with clear growth opportunities identified moving forward.