Workday Subscription Revenue Jumps 14%

Key Points

• Subscription revenue rose 14.0% to $2.17 billion, outpacing overall revenue growth.

• Non-GAAP operating margin improved to 29.0%.

• Full-year subscription revenue and non-GAAP operating margin guidance were raised.

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Workday (NASDAQ:WDAY), a leading provider of enterprise cloud applications for finance and human resources, released its fiscal second quarter results on August 21, 2025. total revenue (GAAP) of $2.348 billion fell slightly below the $2.42274 billion estimated by analysts, even as earnings per share (non-GAAP) of $2.21 beat consensus of $2.17. Management raised full-year subscription revenue and non-GAAP operating margin guidance, amid sustained investment in artificial intelligence and global expansion.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2026 earnings report.

Business Overview and Focus

Workday delivers cloud software that helps organizations manage financial and human resources operations. Its primary offerings include human capital management, financial management, and analytics—all run from a single platform in the cloud.

The company's recurring subscription model provides most of its revenue. Key to its business is integrating artificial intelligence into its applications to improve automation and efficiency. Customer support, satisfaction, and a broad partner ecosystem also underpin its business model.

Quarterly Highlights: Growth, Margins, and Operations

The quarter saw notable growth in recurring subscription revenues, which reached $2.17 billion, up 14.0%. This continues the company's pattern of outpacing overall revenue growth with its subscription business. Management had previously guided for about $2.16 billion in subscription revenue, so the delivered non-GAAP EPS slightly exceeded their expectations. Total revenue (GAAP) reached $2.34 billion, a 12.6% increase year over year, though this was a touch below analyst consensus.

Non-GAAP operating margin, which excludes items such as share-based compensation, grew to 29.0%, a jump from 24.9% the prior year. This reading was above Workday's internal target for the period. The gap between revenue growth (12.6% year-over-year) and the much faster growth in non-GAAP diluted earnings per share (26.3% year-over-year) signals improved operational efficiency. Free cash flow (non-GAAP) was $588 million, compared to $516 million in the same period last year.

This weaker trend in professional services is an area for continued monitoring. Meanwhile, backlog metrics improved. The 12-month subscription revenue backlog grew 16.4% to $7.91 billion, suggesting resilient customer demand and visibility into future billings.

Artificial intelligence remains a primary focus. During the quarter, Workday launched new AI developer tools and announced plans to acquire Paradox, a vendor focused on AI-powered recruiting automation, alongside completing the acquisition of Flowise, a low code AI agent builder. These moves reflect increased capital allocation toward AI-driven offerings. The company also highlighted strong enterprise wins across industries and geographies, and its customer base now covers more than 75 million users.

Workday expanded its partner and developer ecosystem through the introduction of the Workday Agent Partner Network. This move anchors its strategy to promote third-party developers building on its platform and broadening reach via strategic alliances. The company unveiled new government-focused offerings, targeting regulated public sector clients with its cloud software.

Recognition in leading industry benchmark reports—including being named a Leader in Gartner's Magic Quadrant for ERP (enterprise resource planning) in U.S. local government—supported its market positioning. At the same time, legal and regulatory risk related to artificial intelligence discrimination claims remain a known risk area, noted in the company’s forward-looking disclosure and flagged by outside analysts.

Looking Ahead: Guidance and Key Watchpoints

Management raised its guidance for the current fiscal year. The full-year subscription revenue target is now $8.815 billion, representing a 14.2% increase, up slightly from earlier projections. The non-GAAP operating margin target for the full year went up to 29.0%, half a point above the previous quarter's expectation. Guidance for the next quarter calls for subscription revenue of $2.235 billion (14.1% growth) and a non-GAAP operating margin of 28.0%, indicating ongoing confidence but at slightly lower margin than just achieved. Management expects capital allocation to remain focused on buybacks and strategic acquisitions, citing a strong cash and securities balance of $8.19 billion.

No dividend is declared. WDAY does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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Motley Fool Markets Team is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. The Motley Fool takes ultimate responsibility for the content of these articles. Motley Fool Markets Team cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has positions in and recommends Workday. The Motley Fool has a disclosure policy.