Workday shares tumbled over 5% in after-hours trading Tuesday as the enterprise software giant's fourth-quarter margin guidance fell short of Wall Street expectations, despite beating earnings and revenue estimates. The mixed results highlight ongoing pressure on cloud software companies as investors scrutinize profitability amid AI disruption fears.
Workday just delivered a classic earnings paradox - beat the numbers but spooked investors with cautious guidance. The enterprise software company's shares slid more than 5% in extended trading Tuesday after management issued fourth-quarter margin projections that came in just shy of Wall Street's expectations.
The company forecasted a Q4 adjusted operating margin of at least 28.5%, missing the StreetAccount consensus of 28.7%. While the gap seems minimal, it's the kind of precision that matters in today's unforgiving software market where every basis point gets scrutinized.
Actual Q3 results told a different story. Workday posted adjusted earnings of $2.32 per share, crushing the $2.18 estimate, while revenue of $2.43 billion slightly topped projections. The company's bread-and-butter subscription business generated $2.24 billion, exactly matching analyst expectations with a 28.5% operating margin that actually beat the 28.1% forecast.
"We beat on the top and bottom line, but the Street's focused on what's ahead," one analyst noted during Tuesday's earnings call. The disconnect reflects broader anxiety about enterprise software companies navigating an AI-disrupted landscape while maintaining growth trajectories.
CEO Carl Eschenbach addressed the elephant in the room during the analyst call, pushing back against narratives that generative AI threatens established players. "The narrative we've been hearing in the last couple of quarters is changing, and it's coming back to those who are highly penetrated in the enterprise already providing value and are deeply trusted by our customers," he said according to CNBC's transcript.
The timing of Eschenbach's comments isn't coincidental. Workday stock has fallen 9% this year while the Nasdaq surged 19%, reflecting investor concerns about AI cannibalization in the software sector. The company's been fighting this perception while simultaneously embracing AI through strategic moves.
During Q3, Workday announced new AI agents for analyzing employee performance and testing financial health, then revealed plans to acquire AI learning startup . The moves signal management's belief that AI represents opportunity rather than threat.
