Workday shares sink on subscription revenue guidance concerns

Shares of Workday, the software giant, experienced a significant decline of up to 10% on Wednesday as analysts revised their price targets downward. This shift comes in response to the company's updated subscription revenue forecast, which left many investors feeling uncertain. The software industry has faced challenges in 2025, particularly due to concerns that emerging generative AI tools could disrupt established players. In light of this, Workday has been proactive, launching several AI-driven initiatives and enhancing its portfolio through strategic acquisitions, including the recent $1.1 billion acquisition of AI and learning software firm Sana. However, the company's third-quarter earnings report did not meet Wall Street's expectations. Workday projected $8.83 billion in subscription revenue for the fiscal year ending in January 2026, indicating a modest growth of 14.4%. This adjustment reflects only a $13 million increase from the prior guidance issued in August and includes revenue contributions from both Sana and a contract with the U.S. Defense Intelligence Agency, as noted by Workday's finance chief, Zane Rowe, during a conference call with analysts. Analysts from Cantor Fitzgerald expressed that investors were likely anticipating a more robust performance, stating, "Investors were likely looking for more of a beat-and-raise quarter." They maintained a buy rating on Workday stock while highlighting that the new forecast "borders on a slight guide down," keeping their 12-month price target at $280. Stifel, who has a hold rating on Workday, adjusted their target from $255 to $235, noting a lack of evidence for stabilization in the company’s underlying business momentum. Their analysts, Brad Reback and Robert Galvin, commented that growth in the subscription revenue backlog is expected to decelerate, even with the introduction of Workday's AI offerings. In a more colorful metaphor, Evercore analysts described the report as "like turkey without the gravy," reflecting on the lackluster guidance. Meanwhile, RBC analysts, who also maintain a buy rating, reduced their price target to $320 from $340 but acknowledged that the fiscal third-quarter results did surpass consensus estimates. They pointed out that AI products contributed over 1.5 percentage points to annualized revenue growth, with Workday CEO Carl Eschenbach expressing optimism about the early momentum in AI initiatives. As the market continues to navigate these uncertainties, the trajectory of Workday's stock remains a focal point for investors looking for signs of recovery in the software sector.