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Workday Drops Despite Q3 Beat: What Wall Street's Saying

Workday topped third-quarter estimates but said that demand in 2021 could suffer.
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Shares of accounting software maker Workday  (WDAY) - Get Workday, Inc. Class A Report dropped premarket Friday following its third quarter earnings release despite topping earnings and revenue estimates as the company also issued weak guidance for 2021. 

The company said it expects software demand to continue to come under pressure in 2021 due to the coronavirus pandemic. 

Shares fell 3.5% to $222.80 in premarket trading Friday.

Here's what Wall Street is saying about Workday:

Barclays (Equal Weight rating maintained, PT lowered to $234 from $238)

The big debates for investors post a healthy Q3 will be how conservative guidance is, especially around Q4 subscription backlog growth (14-16% YoY vs 20% plus so far this year), and how this year's bookings numbers translate into next year's subscription revenue. We believe that there was a fair amount of investor excitement going into earnings that a healthy Q3 would translate into positive estimate revisions for Q4 and for next year. We are not sure this will happen, considering the headwind from the subscription mechanics discussed earlier this year.

- Raimo Lenschow

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Deutsche Bank (Hold rating maintained, $220 PT maintained)

Workday yet again reported another solid quarter with above-average beats across subscription revenue backlog and margins. The debate largely resides in the 4QF21 subscription revenue backlog guide of mid-teens (below expectations for high teens growth) and how conservative or not it might be as well as the potential for margins to be down year-over-year in FY22.

-Taylor McGinnis

JPMorgan ( Overweight rating, $250 PT maintained)

We are confident in Workday’s multi-year growth potential. Very large established markets and a strong cloud product supported by uniquely high customer satisfaction and the pedigree and experience of its executive management team form a rare combination that we believe could push Workday to the top echelon of the software industry. Our view is further supported by our very constructive conversations with a number of CIOs and numerous Workday customers and partners.

- Mark Murphy

Jefferies (Buy rating, $260 PT maintained) 

WDAY beat ests. across the board, but guided conservatively for backlog growth of 14-16% (800 bps. decel -- not seen thus far). We believe the overall environment is better than guided and that WDAY is gaining traction in large enterprise platform deals. Mgmt. commentary and our checks indicate pipelines are set to rebound in '21 as back office takes more attention away from the front office. We believe it is a core holding into '21.

-Brent Thill