WDAY Q1 Earnings Call: Revenue Misses Expectations, AI Adoption Drives Strategic Focus

Finance and HR software company Workday (NASDAQ: WDAY) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 12.6% year on year to $2.24 billion. Its non-GAAP EPS of $2.23 per share was 11% above analysts’ consensus estimates.

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StockStory’s Take

Workday’s first quarter results highlighted the company’s ongoing focus on expanding its customer base and deepening relationships across finance and HR software markets. Management emphasized strong adoption of AI-driven products and successful expansions with notable clients such as FedEx, CVS Health, and Chipotle. CEO Carl Eschenbach detailed that Workday’s platform, which integrates AI at its core, enables customers to manage key assets like people and finances more efficiently. Eschenbach also noted, “Our AI is fueled by more than seventy million users under contract and one trillion transactions processed on the platform last year,” underscoring the scale and potential of their dataset. The quarter also saw new industry milestones, with manufacturing and tech/media joining Workday’s billion-dollar annual recurring revenue segments.

Looking ahead, Workday’s management reiterated its full-year outlook, citing continued investment in AI, expansion of product offerings, and a growing partner ecosystem as central to its strategy. CFO Zane Rowe stated, “We remain focused on execution and our strategic initiatives,” while acknowledging macroeconomic uncertainty, particularly in sectors like state and local government and international markets. Eschenbach expressed confidence in AI-driven innovation, highlighting a recent launch of new AI agents and robust customer interest in AI-powered solutions. The company plans to drive further growth by scaling AI monetization, accelerating adoption in emerging and medium enterprise segments, and maintaining strong relationships with partners and key industries.

Key Insights from Management’s Remarks

Management attributed first quarter performance to AI product momentum, expansion in key verticals, and targeted efforts in medium enterprise markets.

• AI product adoption accelerating: Management reported that new annual contract value (ACV) from AI-related products more than doubled year over year. Approximately 25% of customer expansions in the quarter included one or more AI-powered modules, such as recruiting and talent mobility agents.
• Expansion in key verticals: Workday noted successful new customer wins and expansions in industries like healthcare, retail, and higher education. More than 30% of new wins were full-suite deployments (combining both finance and HR solutions), rising to over 50% in focused verticals such as state and local government and healthcare.
• Medium enterprise momentum: The launch of WorkdayGo, aimed at emerging and medium-sized businesses, enabled faster, preconfigured platform deployments, with implementation times as short as 30 to 60 days. This initiative contributed meaningfully to new customer additions.
• Partner ecosystem growth: Over 20% of new ACV in the quarter came from partner-sourced pipeline, and the Workday marketplace saw the addition of 25 new partner-developed applications, nearly doubling the developer community year-over-year.
• Global expansion and localized solutions: Notable international wins included organizations in EMEA, Asia-Pacific, and Japan. The company launched localized cloud solutions, such as going live on AWS UK public cloud, and expanded payroll integration to support 187 countries and territories.

Drivers of Future Performance

Workday’s guidance is driven by AI adoption, new product rollouts, and targeted investments across key markets and segments.

• AI monetization and product launches: Management expects continued growth from new and existing AI-powered solutions, forecasting that recently launched AI agents and planned product rollouts will increase adoption across customer segments and drive incremental annual contract value.
• Medium enterprise and industry expansion: Workday is prioritizing growth in emerging and medium-sized businesses through initiatives like WorkdayGo, along with deeper penetration in industries such as manufacturing, healthcare, and government sectors. These efforts are designed to diversify revenue sources and reduce reliance on any single vertical.
• Macro uncertainty and investment discipline: Leadership acknowledged ongoing macroeconomic uncertainty, especially in international and public sector verticals. The company intends to balance investment in innovation and go-to-market initiatives with cost control, aiming to sustain non-GAAP operating margins while navigating potential headwinds.

Catalysts in Upcoming Quarters

Our analysts will closely monitor (1) the pace of AI-powered product adoption and monetization, (2) signs of sustained momentum in medium enterprise and industry-specific verticals, and (3) the company’s ability to maintain margin discipline while investing in product innovation and international expansion. Progress on partner-driven pipeline growth and successful integration of new AI agents will also be important markers for execution.

Workday currently trades at a forward price-to-sales ratio of 6.6×. At this valuation, is it a buy or sell post earnings? See for yourself in our full research report (it’s free).

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