Key Points
Workday saw solid revenue growth but issued conservative guidance.
The company is leaning into artificial intelligence (AI) solutions.
The stock is cheap following the SaaS sell-off.
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The past year has not been kind to Workday‘s (NASDAQ: WDAY) share price. The financial and human capital management software company has been one of the poster children for potential artificial intelligence (AI) disruption, and its stock got dragged down in the software-as-a-service (SaaS) sell-off.
When the company reported its Q4 results and issued conservative guidance, the stock could have easily cratered further. However, it held up, which could mean the pessimism in SaaS stocks has bottomed.
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Let’s take a closer look at Workday’s results and prospects to see if now is the time to buy the stock.
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Solid results but subdued outlook
Like other enterprise SaaS companies, Workday is trying to lean into AI. It saw new annual contract value for AI solutions double in the quarter to $100 million, and annual recurring revenue (ARR) for AI solutions exceeded $400 million. Meanwhile, it said it was aggressively investing in agentic AI and that it has created 12 role-based agents that it is now moving into general availability. It noted that AI solutions continue to be included in about half of its deals and expansions.
Turning to its results, Workday’s Q4 revenue climbed 14.5% year over year to $2.53 billion as subscription revenue rose by nearly 16% to $2.36 billion. Adjusted earnings per share (EPS) jumped 29% to $2.47. That was ahead of consensus estimates for revenue of $2.52 billion and EPS of $2.32, according to analysts polled by LSEG. The company’s 12-month subscription revenue backlog rose by 16% to $8.33 billion, while its total subscription revenue backlog grew by over 12% to $28.1 billion.
Workday ended the quarter with $5.4 billion in cash and marketable securities on its balance sheet and $3 billion in debt after some recent acquisitions. It generated operating cash flow of $2.9 billion and free cash flow of $2.8 billion for the year.
Looking ahead, Workday management forecasted Q1 subscription revenue to grow by 13% to about $2.335 billion, below the $2.35 billion consensus. It’s looking for full-year subscription revenue of between $9.925 billion and $9.95 billion, representing 12% to 13% growth. That was just below the $10 billion in revenue that analysts were expecting.
Is the stock a buy?
The reaction in Workday’s results and guidance could finally signal a bottom. That stock was beaten up going into the report and now trades at a forward price-to-sales (P/S) ratio of 3.2 times and a forward price-to-earnings (P/E) ratio of below 12.5 times, based on analysts’ fiscal 2026 estimates. Those multiples imply the company will see a serious disruption to its business from AI.
Given Workday’s position in human resources, it’s not my favorite of the beaten-down SaaS stocks. However, I also don’t think AI is going to disrupt software or the workplace in some dystopian fashion, and as such, I think the stock looks like a solid option at these levels.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Workday. The Motley Fool recommends London Stock Exchange Group Plc. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
