Workday stock gains as software provider widens 2027 margin target

Workday shares soared as much as 14% on Friday, one day after the finance and human resources software maker issued fiscal second-quarter results that exceeded analyst estimates and announced plans to further widen its adjusted operating margin through 2027.

Here's how the company did, compared to LSEG consensus:

Workday's revenue was up about 17% year over year in the quarter ending July 31, according to a statement. Subscription revenue growth grew 17%. Net income, at $132 million, or 49 cents per share, increased from $79 million, or 30 cents per share, in the same quarter a year ago.

With respect to guidance, Workday is now looking for an adjusted operating margin of 25.25% in the 2025 fiscal year, compared with the 25% forecast it provided in May.

On a Thursday conference call with analysts, Zane Rowe, Workday's finance chief, said he expects the company's adjusted operating margin to expand to 30% in the 2026 and 2027 fiscal years, along with an annual subscription revenue growth of 15%. In September 2023, Workday said it was targeting a 25% adjusted operating margin for fiscal year 2027 and subscription revenue growth between 17% and 19%.

"We are relentlessly focused on scaling all of our processes across the company as we review our product and go-to-market initiatives," Rowe said. "We're also becoming increasingly more targeted in our growth investments, balancing product development with go-to-market resources."

Deutsche Bank analysts led by Brad Zelnick increased their 12-month price target on Workday stock to $275 from $265. They have a hold rating on the stock.

"The increased 30% operating margin target was the big upside surprise as it is now committed both sooner and greater than most were expecting," the