- AI-Driven Revenue Growth Workday generated $100M+ in new ACV from emerging AI products in Q4, a 100% YoY increase.
- Subscription Revenue Expansion Q4 subscription revenue hit $2.36B (up 16%), with FY26 full-year revenue reaching $8.833B (14% growth).
- Operational Efficiency Gains AI agents reduced case volume by over 20% for early access customers, automating key processes like payroll compliance.
- Strong Financial Margins Q4 non-GAAP operating margin reached 30.6%, with FY27 FCF guidance of $3.18B (15% growth).
- Conservative Growth Guidance FY27 subscription revenue projected at $9.925–9.95B (12–13% growth), prioritizing organic AI-driven expansion.
Financial Performance and Guidance
The company's financial performance was strong, with a significant contribution from its AI-driven products. Workday's guidance for FY '27 seems conservative, with a 12-13% growth in subscription revenue, and inorganic contribution to that number not material. The company's operating cash flow is expected to be $3.450 billion, with capital expenditures of approximately $270 million, resulting in free cash flow of $3.180 billion, a 15% growth.
AI Strategy and Innovation
Workday's CEO, Aneel Bhusri, emphasized that HR and ERP systems will not be replaced by AI, but rather transformed by the integration of deterministic enterprise apps with probabilistic AI. The company is investing heavily in AI, focusing on engineering, delivery, adoption, and go-to-market elements. This investment aims to drive growth, with a 12-15% growth range targeted, potentially moving higher on that range. Workday's AI agent, now in general availability, automates payroll compliance and corrections, offering huge efficiency gains for companies.
Valuation and Growth Prospects
With a P/E Ratio of 50.2 and P/S Ratio of 3.72, Workday's valuation suggests that the market is pricing in significant growth prospects. The company's focus on AI-driven innovation and its expanding ecosystem is expected to drive future growth. Analysts estimate next year's revenue growth at 12.3%, which is in line with Workday's guidance. The company's Free Cash Flow Yield of 7.81% is also attractive, indicating a strong ability to generate cash.
European Business and Expansion
Workday's European business has had solid quarters, with growth in ASEAN and a new office in India. The company's expectation is that organic agents will help reignite growth in customer base in Europe, Australia, New Zealand, and parts of Asia. The expansion into new regions and the growth of existing businesses are expected to contribute to Workday's future growth.