Workday Beats Q2 Estimates, But Weaker Guidance Clouds AI-Fueled Rally

Workday reported second-quarter earnings that surpassed analyst expectations, fueled by significant growth in its artificial intelligence products, but a weaker-than-expected forecast for future growth has created a mixed picture for investors.

A Mixed Quarterly Report

Workday Inc. (NASDAQ: WDAY) posted Q2 FY2027 revenue of $2.65 billion and earnings per share of $2.75, beating consensus estimates of $2.64 billion and $2.61, respectively, according to its latest financial release. The results initially sent the company's stock higher.

However, the earnings beat was tempered by the company's forward-looking guidance. Workday projected third-quarter growth for current Remaining Performance Obligations (cRPO) in the range of 11-12%. This forecast missed Wall Street's expectation of 14% and signals a potential deceleration, as cRPO is a critical indicator of future subscription revenue.

AI Shines as Core Business Slows

The company highlighted strong momentum in its AI offerings, which are emerging as a significant growth driver. Management reported several key milestones for its AI products:

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• Annual recurring revenue (ARR) from AI SKUs reached approximately $600 million, a year-over-year increase of more than 200%.
• AI products generated over $100 million in new annual contract value (ACV) during the second quarter alone.
• Customer deals including AI components were, on average, 50% larger than non-AI contracts.

This rapid AI adoption contrasts with the moderation in the company's core subscription business. The source material's analysis noted that the base business is now growing at its slowest pace in several years.

Profitability and M&A Speculation

While top-line growth is a concern for some investors, Workday demonstrated strong profitability. The company's non-GAAP operating margin reached 31.1% for the quarter, ahead of the 30% consensus. The company also guided for a 33% margin in FY2028, beating analyst estimates.

Workday also announced it had completed a $5 billion share buyback program and authorized a new, open-ended $4 billion repurchase plan. Separately, management did not address a recent Reuters report regarding potential acquisition talks with private equity firm Silver Lake, leaving continued market speculation as a factor for the stock.