Workday Inc: 1Q27 Results – Seeing Green Shoots in Organic AI Innovation

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Workday Inc: 1Q27 Results – Seeing Green Shoots in Organic AI Innovation

UpdateMFY27 looks unlikely. Management's conviction in Workday's positioning, a faster pace

of innovation and improving go-to-market capabilities was well summed up in CEO

Aneel Bhusri drawing a line in the sand on the directionality of the business, "I'm

confident in our ability to drive accelerated new ACV bookings this year as we bring

new agents to market for our customers and drive even greater adoption." That said,

one quarter does not make a trend and Workday did benefit from the closing of

Q4's slipped deals to begin the year. Bottom-line, while Workday stands well

positioned to capture an expanding opportunity around their core, a positioning

not reflected in the current share price, it will likely take additional data points

for investors to gain confidence in the turn, despite the attractive risk/reward.

Remain EW.

What We Liked:

• Better Execution on Growth. Q1 subscription revenue of $2.354B (+14.3%

YoY) and total revenue of $2.542B (+13.5% YoY) beat consensus by 0.8% and

1.1%, respectively, an improvement from Q4's 0.2% and 0.4% beats. cRPO

grew 15.5% YoY to $8.806B, at the high-end of the 14.5% - 15.5% guidance

range. Importantly, FY27 subscription revenue guidance for 12-13% YoY was

re-iterated, alleviating fears that Workday's growth expectations would be

cut again.

• Improving New ACV Trends. CEO Aneel Bhusri called Q1 "the best first

quarter of new ACV growth in five years," with new ACV from agentic AI

products growing more than 200% YoY and overall agentic AI ARR

approaching $500M. Expansion deals that included generative AI were over

50% larger on average.

• Margin Flow-Through to FY27. FY27 non-GAAP operating margin guidance