Workday beat Wall Street expectations for second-quarter revenue on Thursday and announced a US$1-billion stock buyback plan, sending the shares of the human resource software provider up around 11% in extended trading.

Corporate spending on human resource and payroll has been rising especially in small-to-medium business segments, according to analysts, despite a cooling labour market in the US.

However, lower hirings weighed on Workday’s outlook as it forecast third-quarter subscription revenue below estimates.

Analysts also expect longer sales cycles due to higher borrowing costs and inflation. “We see a macroeconomic environment consistent with last quarter,” chief financial officer Zane Rowe said.

Company executives said in a post-earnings call that Workday is revising its medium-term plans to accelerate margin expansion, while moderating the pace of subscription revenue growth.

“There were some positive nuggets in management’s outlook including … a 17% increase in subscription revenue and a US$1-billion share buyback programme,” said Michael Ashley Schulman, chief investment officer at Running Point Capital.

Revised

Workday raised its forecast for full-year adjusted operating margin to 25.25% from 25%. It forecast third-quarter subscription revenue of $1.96-billion, compared with expectations of $1.97-billion, according to LSEG data.

Subscription revenue of $1.9-billion was in line with second-quarter estimates. Total revenue of $2.09-billion, however, beat expectations of $2.07-billion. Adjusted operating margin stood at 24.9%, while the Visible Alpha consensus was 24.6%. The company earned $0.49/share, compared with $0.3 a year ago. — Zaheer Kachwala, (c) 2024 Reuters