What happened
Workday (WDAY 2.69%) stock sank Thursday following a downward guidance revision from management. The company's share price closed out the session down 8.5%, according to data from S&P Global Market Intelligence.
At its financial analyst conference Wednesday, Workday laid out new growth targets that came in below its previous guidance range. Workday had previously guided for annualized subscription revenue growth of more than 20% over the next three years, but it lowered its forecast to growth of between 17% and 19%.
So what
In addition, Workday issued a target for a non-GAAP (adjusted) operating income margin of 25% through the end of its fiscal 2026. Even though the business posted an adjusted operating margin of 23.6% last quarter, this guidance was broadly viewed as underwhelming.
Following the forecast updates, Morgan Stanley published a note lowering its price target on the stock from $260 per share to $245 per share. Meanwhile, TD Cowen lowered its one-year price target from $270 per share to $260 per share. Barclays also cut its target to $249 per share -- down from a previous target of $262 per share.
With Workday ending Thursday's trading at $211.22, those revised analyst targets still suggest substantial upside. But Wall Street hates a guidance miss, and the enterprise software specialist got punished for it.
Now what
While the latest guidance may be somewhat disappointing, Workday's new growth and margin targets are far from disastrous. It's also possible that the company is being somewhat conservative with its forecasting.
With macroeconomic uncertainty on the horizon, management may be factoring in a variety of potential headwinds. As an enterprise software company, Workday has a high level of exposure to macro conditions, and a more cautious approach to guidance could be prudent in the current environment. Given its strong industry positioning, long-term investors shouldn't give up on the stock, but management's shift to softer growth is notable.
