Workday stock surges after earnings; technicals point to a short-lived rally

Workday NASDAQ:WDAY stock price surged by over 10% in the pre-market session as investors bought the dip following its better-than-estimated results. It rose to $136, modestly higher than the year-to-date low of $110. 

Workday stock is soaring after earnings report

WDAY stock has been under pressure in the past few years, moving from a high of $311 in 2024 to a low of $110 this year. The retreat accelerated this year amid the rising jitters on SaaSpocalypse, a situation where software companies are driven to the abyss by artificial intelligence tools.

These fears are relatively stretched, especially for a company like Workday that provides essential services that cannot be easily replaced by AI agents.

The company brushed these fears when it published its financial results on Thursday. These results provided more color on its business, with the management hinting that its business was doing relatively well.

Its revenue jumped by 13.5% to $2.54 billion, with its subscriptions rising by 14.3% to $2.3 billion. Most notably, the subscription backlog jumped by 10% to over $27 billion. This growth happened as more companies joined its business, including Del Monte, Enstar, and Smiths.

The company also boosted its forward guidance, which was better than what analysts were expecting. It now expects that its revenue will rise by 12% in the second quarter to $2.63 billion, with its subscription figure rising to $2.455 billion. 

For the year, the company expects that its revenue will be between 11% and 12% rose to between $10.63 billion and $10.66 billion. It also expects that its operating margin is expected to jump to 30.5%, while its free cash flow is expected to jump by 15% to $3.1 billion.

Data compiled by Yahoo Finance shows that analysts expect the figure will jump by 11% this year and 12% in the next financial year. This means that its revenue will be $10.66 billion and $11.87 billion in the next two financial years. 

Analysts are relatively optimistic about the company, albeit with lower estimates than their previous targets. Cantor Fitzgerald’s Matthew VanVliet maintained an overweight rating with a target of $160. Allan Verkhovski, a top BTIG maintained a $175 target, while Rishi Jaluria of RBC has a target of $180.

WDAY stock technical analysis

The weekly chart shows that the Workday stock has been under pressure in the past few years. As a result, it has remained below all moving averages and the Supertrend indicator. 

That is a sign that bears remain in control for now. It even formed a death cross pattern in January as the 50-week and 200-week moving averages crossed each other.

It has formed an inverted cup-and-handle pattern, a common bearish continuation sign. Also, the stock has formed a bearish flag, which is made up of a vertical line and a horizontal channel. 

Therefore, the stock will likely continue falling, potentially to the year-to-date low of $110. However, a move above the resistance level of $150 will invalidate the bearish outlook.