This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

High-Flying Workday Comes Back to Earth

Stocks in this article: WDAY ORCL CRM SPLK

NEW YORK (TheStreet) -- One of the remarkable performers in the last couple of years in tech has been Software as a Service, or SaaS, companies. With a predictable revenue stream, investors have been willing to look past stretched margins and ride with the momentum when the market was rising.

However, when the momentum ended, SaaS stocks pulled back. Probably no company better exemplifies this than Workday (WDAY). Its shares, at $81, are up nearly 40% for the past 52 weeks but down 2.3% for the year to date.

Founded in 2005 by Aneel Bhusri and David Duffield, of PeopleSoft fame. Back then, PeopleSoft had been acquired recently by Oracle (ORCL) after a contentious battle by Larry Ellison to own the company. Duffield and the rest of PeopleSoft's board fought the deal tooth and nail but ended up getting a great payout.

In hindsight, it was the perfect time to sell PeopleSoft and move to the next big thing in enterprise computer: SaaS and the cloud.

Oracle took over the old way of doing HR software when it bought PeopleSoft. It was client software that fed back to the server. When Duffield and Bhusri decided to start Workday, they basically re-envisioned PeopleSoft as a SaaS company. The same focus. The same industry. Just doing it as SaaS.

It's been a hit. It went public in late 2012 below $50 and it topped out at $116 at the end of February. It now sports a market cap that is about half of's (CRM) -- $14 billion versus $33 billion.

Why do investors like SaaS companies so much? It's their predictable revenue stream.

All these companies go out and sign up new customers, who get on a monthly or annual subscription plan. For the most part, once a customer, always a customer. Therefore, companies knock themselves out to sign up as many new customers as fast as they can.

To a regular value investor, it looks like these companies are losing money. From a SaaS management perspective, though, their future revenue stream is incredibly steady so they don't mind spending a lot on sales and marketing to get new customers in the door. In fact, if they're not spending a lot of money they're probably holding back their business.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs