Workday lifts margins on AI

Workday raised its full-year profit margin forecast on May 21 after first-quarter revenue and earnings topped Wall Street estimates, and the stock jumped as much as 14% in extended trading. The Pleasanton, California-based company said fiscal first-quarter revenue rose 13.5% to $2.542 billion, while subscription revenue increased 14.3% to $2.354 billion. (investor.workday.com) Adjusted earnings were $2.66 a share, ahead of analyst expectations of $2.51, according to CNBC’s summary of LSEG data. Workday kept its full-year subscription revenue outlook intact but increased its non-GAAP operating margin forecast to 30.5% from 30%. (cnbc.com) ### Why did investors react so strongly to a margin change? Workday’s new 30.5% full-year non-GAAP operating margin target was the clearest change in its outlook. (prnewswire.com) The prior forecast, given in February, was 30%, and analysts had expected 30% for the fiscal second quarter. Shares rose as investors focused on improved profitability at a time when software companies have been under pressure to show that AI spending can produce returns rather than just product demos. CNBC reported that Workday stock had been down 43% for 2026 through Thursday’s close before the earnings release. That backdrop made the higher margin target more notable because it arrived without a change to the company’s full-year subscription growth outlook of 12% to 13%. (investor.workday.com) ### What did Workday say AI is doing inside the business? Aneel Bhusri, Workday’s co-founder, chief executive and chair, said in the company’s release that “our AI strategy is working.” On the earnings call, he drew a distinction between incremental software features and newer agent-based products, saying, “The 150th feature in HR or finance is not going to move the needle for our business. The next agentic application will.” (cnbc.com) CNBC reported that Bhusri said he wanted to keep headcount as close to flat as possible during fiscal 2027 while employees use Workday software and AI tools from other companies. That comment tied the AI discussion to operating discipline rather than only to new product launches. (cnbc.com) ### How much AI adoption did Workday disclose? Workday said the number of clients using agents it built more than doubled from the previous quarter, with more than 4,000 customers using at least one. Gerrit Kazmaier, Workday’s president of product and technology, said on the analyst call that annualized revenue from agentic AI solutions was approaching $500 million. The company also said on the earnings call that it delivered its best first quarter of new annual contract value growth in five years, according to the transcript summary. (investor.workday.com) Management linked that performance to both the core business and AI traction across products. ### Did the quarter show growth beyond the AI narrative? (cnbc.com) Workday reported operating income of $338 million, or 13.3% of revenue, compared with $39 million, or 1.8%, a year earlier. On a non-GAAP basis, operating income was $809 million, or 31.8% of revenue, up from $677 million, or 30.2%, in the same quarter last year. Operating cash flow rose to $696 million from $457 million, and free cash flow increased to $616 million from $421 million. (cnbc.com) Zane Rowe, Workday’s chief financial officer, said in the release that the quarter showed “ongoing customer adoption across our platform.” Workday also repurchased about 12 million Class A shares for $1.6 billion during the quarter and ended April with $4.353 billion in cash, cash equivalents and marketable securities. (benzinga.com) ### What comes next for Workday? Workday said fiscal second-quarter subscription revenue should be about $2.455 billion, representing 13% growth. The company maintained its full-year subscription revenue guidance at $9.925 billion to $9.950 billion, according to its earnings materials and call summary. Workday’s second quarter ends on July 31, 2026, making that the next scheduled operating milestone investors will watch. (investor.workday.com) (prnewswire.com)