Enterprise software company Workday (NASDAQ: WDAY) met Wall Street’s revenue expectations in Q4 CY2025, with sales up 14.5% year on year to $2.53 billion. Its non-GAAP profit of $2.47 per share was 6.4% above analysts’ consensus estimates.
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Workday (WDAY) Q4 CY2025 Highlights:
- Revenue: $2.53 billion vs analyst estimates of $2.52 billion (14.5% year-on-year growth, in line)
- Adjusted EPS: $2.47 vs analyst estimates of $2.32 (6.4% beat)
- Adjusted Operating Income: $774 million vs analyst estimates of $720.5 million (30.6% margin, 7.4% beat)
- Subscription revenue guidance: Q1 growth of 13% year-on-year, full-year growth of 12-13% (both misses)
- Operating Margin: 6.9%, up from 3.4% in the same quarter last year
- Free Cash Flow Margin: 48.1%, up from 22.6% in the previous quarter
- Billings: $3.66 billion at quarter end, up 12.7% year on year
- Market Capitalization: $33.98 billion
Company Overview
Born from the vision of PeopleSoft founders after Oracle's hostile takeover of their previous company, Workday (NASDAQ: WDAY) provides cloud-based software for financial management, human resources, planning, and analytics to help organizations manage their business operations.
Revenue Growth
A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Workday grew its sales at a 17.2% annual rate. Though this growth is acceptable on an absolute basis, we need to see more than just topline growth for the software sector, which can display significant earnings volatility. This means our bar for the sector is particularly high, reflecting the non-essential and hit-driven nature of the products and services offered. Additionally, five-year CAGR starts around Covid, when revenue was depressed then rebounded.
We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Workday’s recent performance shows its demand has slowed as its annualized revenue growth of 14.7% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. 
This quarter, Workday’s year-on-year revenue growth was 14.5%, and its $2.53 billion of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 12.1% over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges.
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Billings
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Workday’s billings came in at $3.66 billion in Q4, and over the last four quarters, its growth slightly lagged the sector as it averaged 13.2% year-on-year increases. This performance mirrored its total sales and suggests that increasing competition is causing challenges in acquiring/retaining customers. 
Customer Acquisition Efficiency
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Workday is efficient at acquiring new customers, and its CAC payback period checked in at 41.4 months this quarter. The company’s relatively fast recovery of its customer acquisition costs means it can attempt to spur growth by increasing its sales and marketing investments. 
Key Takeaways from Workday’s Q4 Results
It was good to see Workday narrowly top analysts’ billings expectations this quarter. On the other hand, both Q1 and full-year subscription revenue growth guidance fell short of expectations. This is weighing on shares, especially because the market is skittish regarding software stocks. Shares traded down 7.8% to $120.21 immediately following the results.
Big picture, is Workday a buy here and now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here (it’s free).
