Workday Beat Earnings Estimates. The Stock Is Down 10% Anyway.

Workday stock is down this year due in part to fears about artificial intelligence. (Photograph Courtesy Workday)

Key Points

• Workday’s adjusted earnings of $2.32 per share and revenue of $2.43 billion exceeded expectations.
• Despite strong earnings, Workday’s stock fell 9.7% to $211.06, as investors questioned organic growth and margin expansion.
• Acquisitions Paradox and Sana are expected to contribute 1.5 percentage points to the 15.5% subscription revenue growth in the fiscal fourth quarter.

Workday , the workplace software company, breezed past expectations for quarterly earnings, but it wasn’t enough for Wall Street.

The company posted adjusted earnings of $2.32 a share for its fiscal third quarter ended in October, ahead of analysts’ consensus call for $2.17, per FactSet. Revenue totaled $2.43 billion, a 13% increase from last year and above expectations of $2.42 billion.

Management narrowly lifted its guidance fiscal 2026 subscription revenue and offered an initial forecast for next year. The company expects subscription revenue to grow 13% in 2027, in line with its target of compounded annual growth of 12% to 15% through fiscal 2028.

Shareholders’ reward for the “beat-and-raise” quarter? Workday stock plummeted 9.7% to $211.06 Wednesday, making it the worst performer in the S&P 500 on the day.

While Workday delivered on expectations, it did little to quell investors’ debates about organic growth and margin expansion, said Wells Fargo analyst Michael Turrin in a research note. Management didn’t significantly boost its guidance for next quarter and didn’t offer its usual preliminary outlook on next year’s margins, Turrin noted.

The near-term outlook also remained a bit difficult to parse due to the contributions of the company’s new acquisitions, Paradox and Sana. That duo will account for roughly 1.5 percentage points of the 15.5% subscription revenue growth Workday expects in the fiscal fourth quarter, the company said.

Wells Fargo reiterated an Overweight rating for the stock, but lowered its price target to $290 from $300.

D.A. Davidson analyst Lucky Schreiner concurred, arguing in a note that the organic growth outlook likely left investors with some questions. The firm maintained a Neutral rating and lowered its target price to $250 from $260.

“We view the company positively with a large opportunity in front of it but wait to see more clear signs of organic upside to revenue moving forward,” Schreiner wrote.

It doesn’t help that enterprise software stocks in general have faced skepticism in 2025 due to artificial intelligence. AI tools, the argument goes, would make work less labor-intensive for customers. A potential job-market downturn, meanwhile, would reduce hiring by client companies. Both dynamics are a risk for software providers with per-employee pricing.

Workday has responded by unveiling AI solutions of its own. But the stock is still down 18% this year.

“Customers of all sizes and industries tell us that an investment in Workday is an investment in their AI strategy,” CEO Carl M. Eschenbach said in a conference call. “More than three-quarters of net-new deals and 35% of customer expansions included one or more AI products.”

In keeping with their rough year, enterprise software stocks sank alongside Workday on Wednesday. Salesforce was down 2.7%, Paychex slipped 0.2%, and Automatic Data Processing —better known as ADP—was down less than 0.1%. The tech-heavy Nasdaq Composite rose 0.9% Wednesday.

Write to Nate Wolf at nate.wolf@barrons.com