Workday’s Analyst Day Shows Path to $10 Billion With Plenty of Opportunity Ahead; Shares Attractive

On Sept. 13, Workday hosted its financial analyst day, updating its total market size and its strategies to saturate more of it. We liked two strategies in particular, which were woven throughout the day’s events: increasing automation and prescriptive recommendations for users, and further developing industry specific capabilities. The latter is especially important, in our view, as deals with companies in core industries Workday specializes in are 50% greater in size, on average, than deals with clients in noncore industries. We think focus on further industry development with smarter capabilities enabled by AI will help Workday gain more share in its upped total addressable market. Workday highlighted that its total addressable market has grown by about 20% year over year to $125 billion plus from $105 billion—most of which is coming from human capital management, or HCM, growth, with particular opportunity in international and the medium enterprise (businesses with 3,500 employees or less). This implies less than 5% penetration today. With our confidence in Workday as strong as ever, we are maintaining our fair value estimate of $229 per share, which leaves shares quite attractive for the investor wanting the rare opportunity to buy shares of a wide-moat positive-trend company at a discount.