Political Uncertainty Dims Workday’s Near-Term Prospects

Similar to Cornerstone On Demand, Workday faces customer delays due to Brexit


Workday continued its winning streak in the Cloud HCM applications market, posting a 38% jump in Cloud subscription revenues in its latest quarter. However political uncertainty at home and abroad has cast doubt on its near-term prospects.

For the quarter ended October 31, Workday posted $336 million in Cloud subscription revenues, a 38% jump from a year ago. Professional services sales rose 18% to $74 million. Losses widened 47% from $78 million to $114 million in the latest quarter on a 34% rise in total sales of $410 million.

As Workday expands, its growth decelerates - Customer Count
As Workday expands, its growth decelerates

During its 3QFY17 earnings call, Workday CEO Aneel Bhusri said a number of multinational customers had postponed purchases of its applications during the quarter because of political uncertainty surrounding Brexit and the US general election. Following the earnings call, Workday’s stock dropped 12% the next day.

Workday executives downplayed the delays, suggesting that these were deals that would slip into its current quarter. Still, the uncertainty, coupled with the potential regulatory changes under the Trump administration in 2017, will have considerable impact on the buying preferences of companies based on our continuous survey of tens of thousands of enterprise applications customers.

For the time being, Workday is still the darling in the Cloud HCM applications market as it is on track to hit the 2,000 milestone in customer count by the end of its fiscal 2017, compared with 1,181 in fiscal 2016. With the general availability of Workday Learning, Planning and Student, Workday is expected to see an enlarged customer pipeline that wants to standardize around its platform for both HR and financial management applications.

About 70% of its customers have already gone live with their Workday applications. Recent deployments included Airbus Group, Centrica, First Financial Bank, ING Group, and Saint Luke’s Health System.

During 3Q17, Workday’s wins for Cloud HCM included Alimentation Couche-Tard Inc., GE Appliances, Husqvarna Group, KONE Corporation, St Vincent’s Health Australia, State Street, Philips Lighting and St Vincent’s Health Australia.

Additionally, Workday signed Metropolitan Washington Airports Authority and Virgin Voyages for its financial management apps, while customers including Denny’s, Panera, LLC, T. Rowe Price, and Zillow have expanded their Workday deployments with Workday Financial Management.

Because of the uncertainty, Workday’s guidance calls for posting somewhere between $358 million and $368 million in Cloud subscription revenues for 4QFY17, or between 37% and 39% growth from year-earlier period.

Regardless of the murky outlook, Workday’s salad days may be over given its aversion to grow via sizable acquisitions amid a decelerating trend and the law of the big numbers. Over the past three years, Workday’s quarterly growth rate has been halved to 38% in its current three-month period.

Workday did pay $144 million for Platflora for its analytics products in August 2016, but the goal is not to grow its top line but rather enrich its products by enabling Workday users to access non-Workday data sources that were not available to them from within Workday in the past.

Workday Acquisitions
Workday’s recent acquisitions

Workday is not the only HCM that has attributed political uncertainty to customer’s shifting priorities. During its third quarter of 2016, Cornerstone OnDemand saw similar delays from its European customers, especially those in the United Kingdom, for postponing their purchasing decisions following the Brexit vote.

In fact, Cornerstone, which offers eLearning and talent management applications to more than 2,800 customers including many multinationals based in the UK, said Britain could be a drag on its overall performance because of the depreciating pound and volatility within the European Union. The situation could get worse as Cornerstone aims to limit its exposure by disbanding its national accounts team, which focused on some of the biigest organizations around the world. Instead, Cornerstone would refocus its efforts on the midmarket. Similar to Workday, Cornerstone stock fell sharply following the announcement.

Another concern has to do with the general spending climate on HR applications especially those that are designed for workforce management and compliance. Potential changes to Affordable Care Act reporting and Overtime Regulations under the Trump administration could cause some companies to have second thoughts about investing in new applications that may end up doing little to accommodate regulatory requirements that are in flux.

Stay tuned for our upcoming HCM Top 500 Market Report in which we will discuss the latest results of  the world’s 500 largest HCM applications vendors and what you can expect from them in 2017 with increased political uncertainty and global volatility that could upend the way enterprises invest in new systems to manage and measure their human capital. Make sure you sign up for our newsletter – your passport to the latest developments among HCM Top 500, or the enterprise applications market for that matter.