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Workday Inc (WDAY): Billionaire Mandel Clears 9%

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A 13G filed with the SEC has reported that Lone Pine Capital, which is managed by billionaire and Tiger Cub Stephen Mandel, owns 3.5 million shares of Workday Inc (NYSE:WDAY), a $9.7 billion market cap enterprise software company. This gives Lone Pine over 9% of the total shares outstanding. We track quarterly 13F filings from hedge funds such as Lone Pine as part of our work developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year) and so we can see that as of the end of December the fund owned about 980,000 shares. See more of Mandel’s stock picks.

Workday Inc (NYSE:WDAY) went public in October 2012, and is currently up 19% from its levels shortly after the IPO. The company’s fiscal year ended in January 2013, with revenue more than doubling compared to the previous fiscal year. Technically, margins did improve, but Workday was still left with a 50% increase in operating losses. This was partly due to a large percentage increase in R&D (some analysts argue that research and development should be thought of as an investment, particularly with software and other technology companies, rather than purely as an expense), though in income statement terms it’s tough to see much progress. Workday Inc (NYSE:WDAY) did manage slightly positive cash flow from operations for the year, but this was actually less than what it used on capex. We’d note that investment needs are low compared to the cash raised in the IPO (which was mostly invested in marketable securities).

LONE PINE CAPITALWall Street analysts are expecting 77 cents in losses per share this year, and negative 72 cents in EPS for the fiscal year ending in January 2015. So the sell-side appears very pessimistic about Workday actually becoming profitable. The most recent data shows that 17% of the float is held short. With operating losses growing, we don’t recommend the stock as a buy.

Fellow Tiger Cub John Griffin’s Blue Ridge Capital was the largest shareholder in Workday at the end of 2012 out of the filers we track in our database, with a position of 1.8 million shares (find Griffin’s favorite stocks). Tiger Global Management was another major shareholder, disclosing ownership of 525,000 shares in its own 13F (check out more stocks Tiger Global likes). “Tiger Cub” funds such as these three are so named because they were founded by former employees of billionaire and legendary investor Julian Robertson’s Tiger Management.

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