WDAY Q2 Earnings Beat Estimates on Subscription Growth, Margin Gains

Workday, Inc. WDAY reported second-quarter fiscal 2027 non-GAAP earnings of $2.75 per share, which increased 24.4% from $2.21 a year ago. The bottom line beat the Zacks Consensus Estimate of $2.62 by 4.96%. Revenues rose 12.8% to $2.65 billion, beating the consensus estimate of $2.63 billion by 0.57%.

Subscription growth, stronger margins and rising AI adoption supported the quarter. AI products drove more than $100 million of new annual contract value, representing more than 25% of total new Annual Contract Value (ACV). 12-month subscription revenue backlog increased 14.2% to $9.03 billion. 

WDAY's Subscription Base Keeps Growing

Subscription services revenues rose 13.9% year over year to $2.47 billion, accounting for about 93% of total revenues. Roughly 60% of the increase came from expansion among existing customers, with the balance from customers added after the start of the comparable prior-year period. 

Professional services revenues slipped 1% to $178 million as Workday continued to leverage service partners. U.S. revenues increased 12% to $1.97 billion, while international revenues climbed 17% to $682 million. Total subscription revenue backlog grew 8% to $27.4 billion, and gross revenue retention remained about 97%. 

Workday, Inc. Price, Consensus and EPS Surprise

Workday, Inc. price-consensus-eps-surprise-chart | Workday, Inc. Quote

Workday's AI Momentum Broadens

Agentic AI annual recurring revenues approached $600 million, rising more than 200% year over year and 20% sequentially. More than 5,500 customers were using at least one organic Workday agent, up more than 35% from the prior quarter. More than half of net new wins included one or more AI solutions. 

AI activity was visible across products. More than 30 million candidates interacted with the Talent Acquisition Agent, which scheduled more than eight million interviews. 170 customers had purchased Adaptive Decision Intelligence, and more than 200 customers had signed up for Flex Credits. 

WDAY Expands Margins Despite Higher Costs

Total costs and expenses increased 11% to $2.34 billion. The rise included $126 million of higher employee-related expenses, $43 million of additional facilities and IT costs, and a $32 million increase in third-party hosted infrastructure spending. 

During the quarter, non-GAAP net income increased 13.2% to $677 million. GAAP operating income advanced 26% to $313 million, with margin improving to 11.8% from 10.6%. Non-GAAP operating income rose 21% to $824 million, while margin expanded to 31.1% from 29%. Workday attributed the improvement to revenue growth outpacing headcount growth and moderated operating expenses. GAAP results also included a $374 million nonrecurring tax benefit. 

Workday Cash Flow Falls on Payroll Timing

Operating cash flow totaled $520 million, down from $616 million a year earlier, while free cash flow declined to $460 million from $588 million. During the first six months of 2026, the company generated $1.22 billion in cash compared with $1.07 billion in the year-ago period. Management attributed the year-over-year decline to the payroll calendar, which included an additional payroll run in the quarter. 

As of July 31, 2026, Workday had cash, cash equivalents and marketable securities of $3.4 billion with long-term debt of $1.99 billion. The company repurchased $1.3 billion of shares during the quarter, completing its $5 billion repurchase plan six months ahead of target. The board subsequently authorized a new open-ended $4 billion share repurchase program. 

WDAY Raises Fiscal 2027 Margin View

For the third quarter of fiscal 2027, Workday expects total revenues of $2.69 billion, up 11%, and subscription revenues of $2.52 billion, up 12%. Management projects 12-month subscription revenue backlog growth of 11-12% and a non-GAAP operating margin of 30%. 

For fiscal 2027, total revenues are projected at $10.65-$10.66 billion, up 12%, while subscription revenues are forecast at $9.94-$9.95 billion, up 13%. Workday raised its non-GAAP operating margin outlook to 31%. It maintained operating cash flow guidance of $3.45 billion and expects $3.18 billion of free cash flow, up 15%. 

Workday Sets Fiscal 2028 Growth Framework

Management's current fiscal 2028 target calls for subscription revenue growth of about 11%, consistent with the expected second-half fiscal 2027 growth rate. Potential upside could come from Sana Enterprise, Workday Extend with Data Cloud and AI agents, all of which management said are seeing strong early demand. 

Workday also expects its non-GAAP operating margin to expand by at least two percentage points in fiscal 2028. The company is prioritizing adoption before full monetization of consumption-based AI products, with management expecting AI to become a more significant contributor to incremental annual recurring revenues from fiscal 2028 and beyond. 

WDAY’s Zacks Rank

Workday currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

Silicon Motion Technology Corporation SIMO sports a Zacks Rank #1 at present. In the last reported quarter, it delivered an earnings surprise of 14.08%. 

It is benefiting from growing demand for NAND flash storage solutions driven by AI, data centers, PCs, smartphones and automotive applications. Its focus on advanced controller technologies, PCIe Gen5 solutions and expanding embedded storage offerings is expected to support long-term growth and strengthen its position in the storage semiconductor market.

Texas Instruments Incorporated TXN carries a Zacks Rank #2 at present. It delivered an earnings surprise of 12.04% in the last reported quarter. 

The company is experiencing strong demand for analog and embedded processing solutions across industrial, automotive, communications and personal electronics markets. Its focus on product innovation, manufacturing capacity expansion and embedded processing technologies is likely to drive long-term growth.

Amazon.com, Inc. AMZN carries a Zacks Rank #2 at present. It delivered an earnings surprise of 2.73% in the last reported quarter.

Amazon continues to gain from strong demand for e-commerce, cloud computing, and digital advertising services, supported by the growing adoption of AI. Its expanding Amazon Web Services business, investments in generative AI and cloud infrastructure, and growing fulfillment network support sustained growth and strengthen its competitive position.

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