Workday Meets FY26 Guidance with Steady Growth, Reinforcing Cautious Optimism

What happened

Workday announced fiscal 2026 results with subscription revenue up 14.5% to $8.833 billion, aligning precisely with its guided target and the DeepValue base scenario's 13-14% growth range. Operating cash flow surged 19.4% to $2.939 billion, highlighting strong cash generation despite ongoing AI and restructuring investments. However, the company's forward indication of FY27 growth around 13% remains at the low end of its 12-15% long-term CAGR framework, reflecting persistent macro-driven deal scrutiny. These numbers confirm solid execution but mask underlying risks like elongating sales cycles and the need for AI monetization to accelerate meaningfully. Investors must look beyond the positive headlines to assess whether margin discipline can be sustained as growth moderates and integration costs from recent acquisitions weigh on profitability.

Implication

The confirmed 14.5% subscription growth validates the DeepValue base scenario's $190 implied value, providing near-term stability for the stock. Strong operating cash flow growth enhances financial flexibility for buybacks and AI investments, aligning with Elliott-influenced capital allocation. Yet, the premium valuation of ~21x FY25 free cash flow offers little cushion, making FY27 guidance critical to avoid a de-rating toward the $140 bear case. AI attach rates and backlog conversion must improve to offset macro headwinds and justify mid-teens growth without margin erosion. Consequently, investors should adhere to a disciplined entry strategy near $160, as per DeepValue's attractive entry point, while monitoring quarterly updates for early warning signs of thesis breakers.

Thesis delta

The FY26 results do not materially alter the investment thesis but reinforce Workday's ability to execute within its guided parameters. The emphasis now shifts to FY27 guidance and AI monetization metrics, which must confirm a sustainable 12-15% growth trajectory to maintain the potential buy rating. Any deviation from these benchmarks in the next 6-12 months could prompt a reassessment due to heightened sensitivity around growth and margins.