Workday recently announced robust third-quarter financial results, including an earnings per share of $2.32 and revenue of $2.43 billion, both surpassing analyst expectations. The company also reported a significant increase in its 12-month subscription revenue backlog, reaching $8.21 billion, partly attributed to the acquisition of Paradox. Management highlighted the continued success of its AI initiatives and ongoing platform enhancements. However, these positive developments were overshadowed by activist investor Dan Loeb's Third Point LLC completely selling off its shares in the company, a move that signals a lack of long-term confidence from a prominent financial player. This marks the second instance in 2025 where Third Point has fully exited its position in Workday.
Adding to the investor skepticism, several analysts have subsequently reduced their price targets for Workday. While the company did raise its full-year revenue guidance, analysts like Rishi Jaluria of RBC Capital noted that organic revenue growth might still fall short of consensus. Similarly, Jason Celino from KeyBanc pointed out that subscription and professional services revenues only marginally exceeded estimates, and the company's fourth-quarter outlook for its non-GAAP operating margin was slightly below market expectations. These concerns, along with the impact of external factors such as a U.S. federal government shutdown affecting deals, paint a picture of cautious optimism among market watchers, despite Workday's otherwise solid performance.
Investor Exits Amidst Strong Financials
Despite Workday's recent announcement of impressive third-quarter results, including exceeding earnings and revenue forecasts, the company is experiencing a significant withdrawal of investor confidence. Activist investor Dan Loeb's Third Point LLC notably liquidated its entire holding in Workday during the third quarter of 2025, repeating a similar divestment earlier in the year. This move by a prominent hedge fund, especially after the company's reported strong performance and increased subscription revenue backlog, signals potential underlying concerns or a shift in investment strategy that contrasts with the seemingly positive financial indicators. The full divestment highlights a growing skepticism from certain high-profile investors, suggesting they may perceive challenges not immediately apparent in the quarterly reports.
The investor sentiment is further complicated by the fact that this is the second time in 2025 that Third Point has fully exited its stake in Workday. This pattern suggests a lack of sustained conviction in the company’s long-term growth trajectory from a significant market influencer. While Workday’s management pointed to momentum in its AI portfolio and ongoing innovation, these factors seemingly did not suffice to retain Third Point's investment. The divergence between strong reported financials and a major investor's repeated divestment creates a complex narrative for Workday, raising questions about the sustainability of its growth and its appeal to long-term institutional investors.
Analysts Temper Expectations Despite Revenue Growth
Following Workday's positive third-quarter earnings report, which included an adjusted EPS of $2.32 and revenue of $2.43 billion—both above estimates—several financial analysts have opted to lower their price targets for the software company. This cautious adjustment comes despite the company’s 17.6% year-over-year increase in its 12-month subscription revenue backlog, boosted by the Paradox acquisition, and management's emphasis on AI advancements. The analysts' revised outlook is influenced by concerns that Workday's organic revenue growth, though improved, might still fall short of broader market consensus, and that the company's operating margin guidance, while robust, was slightly below some expectations, leading to a more conservative valuation.
Expert analysis from firms such as RBC Capital and KeyBanc indicates that while Workday’s performance was technically strong, the nuances of its financial health suggest a need for tempered expectations. For instance, RBC Capital maintained an Outperform rating but reduced its price forecast from $340 to $320, citing concerns about organic revenue despite an overall revenue guidance increase. KeyBanc also lowered its price target from $285 to $260, noting that revenue from subscriptions and professional services only slightly surpassed consensus and that the fourth-quarter outlook was merely in line with expectations. Furthermore, external pressures like a U.S. federal government shutdown negatively impacting deals, as highlighted by a Needham analyst, and the projected non-GAAP operating margin being slightly depressed by acquisitions, further contribute to a more conservative analyst perspective on Workday's near-term stock performance.