Workday, Inc.

Moat: 3/5

Understandability: 3/5

Balance Sheet Health: 5/5

Workday, Inc. is a cloud-based software provider specializing in financial management and human capital management applications, catering primarily to large enterprises, with a growing presence in the mid-market.

Investor Relations Previous Earnings Calls


The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Workday’s business model revolves around providing enterprise-level cloud-based software applications for financial management, human capital management, analytics, and AI-driven solutions. These solutions help companies manage their finances, HR functions, and data effectively.

Business Overview

Revenue Distribution

  • Subscription Services: This makes up the majority of revenue, as WDAY sells software as a service. It means users pay a recurring fee to access their applications over their lifespan.
    • In the most recent quarter (July 2024), subscription revenue made up around 89% of the total revenue.
  • Professional Services: Provides implementation support, training, and ongoing support to clients. This category adds to recurring revenue.
    • Professional services made up the rest of the revenue.

As a cloud-based company, Workday benefits from the predictable revenue stream offered by its subscription model, where customers pay a recurring fee to use their software, allowing WDAY to focus on further innovation and growth.

  • Shift to Cloud Computing: The shift to cloud-based software continues to be a prominent trend, with more and more companies migrating their operations to cloud-based applications. WDAY is benefiting from this move as it offers fully cloud based software.
  • Demand for Data Analysis and AI: Companies are looking for more innovative technology that will help them analyze their data and gain crucial insights for the company’s overall success. Workday is leaning into this trend, integrating Ai into its platforms, so they can offer even better solutions to customers.

Competitive Landscape

  • The enterprise software market is fiercely competitive with a lot of well-established players and rising disruptors. The biggest competitors include SAP and Oracle.
  • The major sources of competitive advantage in this industry are switching costs, network effects, intangible assets, economies of scale and cost advantages.
  • Workday’s management believes they are differentiating themselves by its cloud-first approach. This enables them to implement and develop solutions quickly, while continuing to benefit from the newest technologies.
  • Workday’s main focus is on the customer, which helps them provide better service and products to the customer base. Their culture revolves around the idea of delivering real value to their customers.

Financial Analysis

Workday’s financials reflect a company on a growth trajectory, and also in the process of balancing that growth with improving profitability. This has been a successful year for the company, as the company is starting to show profitability in addition to fast growth.

Latest Quarterly Performance (Fiscal Q2 2025)

  • Total Revenue: The total revenue grew to $1.98 billion, which was a 16.3% increase from the last year.
  • Subscription Revenue: Subscription revenue grew to $1.76 billion with 17.9% growth.
  • Professional services revenue: Professional services revenue grew to $220 million.
  • Operating Income: GAAP operating income rose to $254.4 million, and non-GAAP operating income stood at $480.7 million, and showed a vast improvement from negative margins last year.
  • Net Income: Net income stood at $90.1 million, but Non-GAAP net income was $435 million.
  • EPS: Diluted EPS was 34 cents compared to the diluted loss last year. And non-GAAP diluted EPS was $1.43.

Balance Sheet Health: 5 / 5

  • Liquidity: Workday maintains a solid liquidity position with $6.1 billion in cash, cash equivalents, and marketable securities. This cash balance provides a substantial buffer and gives financial flexibility. The total liabilities are at around $7 billion, which gives a good liability to asset ratio.
  • Low Debt: There is almost no debt in the company’s balance sheet, at around $2.5 billion, and the high cash position puts the company in an excellent financial position.
  • Positive cash flow: Workday has a history of generating positive cash flows, providing the company with a source of internal funding.

Revenue Growth

  • The company’s revenue is growing consistently.
  • However, subscription revenue growth is higher than total revenue growth and professional service revenue growth which could be an indication of slower expansion.

Moat Assessment: 3/5

Workday possesses a “Narrow Moat,” indicating a moderate and defensible competitive advantage, but not a wide one, as competitors have established strong positions.

  • Switching Costs: Workday’s platform has high switching costs, which creates customer stickiness. Integrating their software into a company’s core operations makes it difficult and expensive to switch, because there is so much sensitive data involved, and it often results in retraining and process changes. This is a potent advantage for the company.
  • Brand Recognition & Customer Base: The brand is well-recognized for its robust and modern cloud-based solutions. This is highly desirable in new business sales and also when customers may renew existing contracts. Furthermore, the company’s customer base has a sizable presence with Fortune 500 companies, giving stability and prestige.

However, the competitive landscape for large enterprise software is quite intense, and companies like SAP and Oracle provide robust products with a similar business model. These companies also offer a strong amount of switching costs to their products and are better at handling their products than WDAY due to their experience. For now, Workday can continue to maintain its client base, but will need to keep on improving to ensure sustainable value creation over the long term.

Risks to the Moat

  • Intense Competition: The market is fiercely competitive with several well-established players, who can also rely on their massive sizes for pricing pressure, and better innovation.
  • Technological Disruption: Rapid changes in technology are always a risk. The current trend of Ai and AI-driven products has changed the market entirely, and new innovations can suddenly make Workday’s products irrelevant if they fail to adapt.
  • Increased Competition in Mid-market: The mid-market space is increasingly important, and WDAY has had success. But if smaller and more focused competitors grow fast in this area, WDAY can lose market share and also see slower overall revenue growth.
  • Subscription Revenue Slowdown: If the subscription revenue growth slows down or becomes unstable in anyway, WDAY’s earnings and cash flow would take a big hit.
  • Reliance on a Specific Niche: It is not good to focus on any particular niche, but WDAY’s heavy reliance on large enterprises is a problem, because that will make it harder for it to expand in other sectors.

Understandability: 3 / 5

  • Workday’s products, while sophisticated, focus primarily on common business areas like financial management and HR, which makes it easier for an intelligent investor to quickly grasp the core fundamentals of the business.
  • The subscription model is easy to understand and provides a reliable source of revenue for the company.
  • However, some areas like its technology and the many details of its features can become hard to understand, and also a thorough analysis of its competitors and its strategic goals can also become challenging. So, because of some of the more complex aspects, an understandability rating of 3/5 is justified.

Management Discussion

  • AI Integration: The management of Workday is putting a major focus on infusing AI in its various offerings.
  • Acquisition Strategy: WDAY is open to strategic acquisitions that will expand their presence and product line.
  • Cost Management: The company’s focus is on balancing growth with improved profitability. That means the company will actively find areas where it can reduce or manage costs.

Overall, the management is clearly focused on expanding their business by creating innovative new products and services while managing costs to improve profitability over time. They are positioning the company for future success.