In the subscription software sector, full of fast-growing companies with high-priced stocks like Salesforce.com and Xero, Workday long stood out. But the company is beginning to lose its luster.
The nine-year-old company makes cloud-based human resources software and has started pushing into apps for corporate financials as well. Its growth has been brisk, with third quarter revenues expanding 68 percent year over year, while its stock is trading at 13 times projected 2015 sales. That’s about twice the multiple enjoyed by slower-growing Salesforce.
But that premium valuation is increasingly looking out of whack. Workday’s revenue growth is decelerating; the company projects it will fall to 40 percent for its next full year, close to fellow cloud firms like Marketo. Meanwhile, questions are intensifying about the company’s revenue prospects. For one thing, analysts worry that its push into corporate financial software will take time, given how infrequently companies replace those systems.
There’s also a concern that Workday’s easy customer wins are gone, particularly as legacy behemoths like Oracle and SAP are competing more effectively with cloud startups. But the biggest long-term question for Workday is whether its focus on selling integrated “suites” of business software, as Oracle and SAP have long done, makes sense in a time when integrating software from different suppliers is easier than it has been in the past.