3. Workday, Inc. (NASDAQ: WDAY)
Revenue(2015): $787.9 million
Revenue(2020): $3.63 billion
Employees: 12,200
Workday is a software company that produces human capital management(HCM), financial management, and enterprise resource management(ERM) applications and programs. Founded in 2005, the company provides a unified toolkit that allows companies to manage the payroll, track the time, and analyze data.
It is a user-friendly software that reduces the manual paperwork requirements of its users. Workday has products that aid the recruitment and monitoring of employees and optimizes the performance of the workforce.
The company has a tool, Workday Big Analytics, that develops analytical templates that address issues and topics related to human resources and finance. Some of its customers include; Amazon, Netflix, Bank of America, and more.
Cooper Investors, in their Q4 2020 Investor Letter, said that they they see great fundamentals in Workday, Inc. (NASDAQ: WDAY). Here is what Cooper Investors stated:
“Workday (“WDAY”) is the Cloud leader in Human Capital Management (HCM) and Financials software. We first met WDAY 7 years ago as a much smaller enterprise but today it’s on the verge of reporting ~US$4bn in revenues. WDAY has had great success in its HCM offering particularly with the world’s largest companies. However its Financials product has seen more muted growth with customers reluctant to shift such a core function to the Cloud, success here tending to be in the mid-market. Financials comprise only 20% of company revenues today but with the pandemic forcing remote work and benefits, and reliability of Cloud applications becoming clear WDAY’s Financials solutions appear ripe for mainstream adoption.
For all WDAY’s success and averaging over 35% p.a. sales growth the share has barely outperformed the S&P500 since early 2014 as its sales multiple declined from 26x to 10x. WDAY now trades on a more reasonable but still elevated FCF multiple of 43x. However on our view of normalised margins this multiple of FCF would be even lower, below 30x. The nature of the accounting for SAAS (Software-as-a-Service) businesses is that most growth investment goes through the income statement in R&D or Sales and Marketing, versus capex for a typical industrial business. So growth investment tends to depress reported earnings. WDAY is investing to grow its top line 20-25% and if they were to slowdown and grow in line with the market (around 10%) we would expect to see a typical 30%+ software margin, up from the 17% reported margin today. WDAY is led by its founders who own 25% of the company – Chairman David Duffield is an industry pioneer previously founding Peoplesoft (eventually acquired by Oracle) while CEO Aneel Bhusri was Vice Chairman of Peoplesoft.”
