Workday Stock Falls on Weak Margin Forecast
Workday stock slipped after Q4 margin guidance fell short on Nov. 25, 2025, despite strong Q3 revenue and subscription growth; company cited AI investment.
KEY TAKEAWAYS
- Q3 revenue was $2.4 billion, subscription revenue $2.2 billion, up 12.6% and 14.6%.
- Company guided Q4 non-GAAP operating margin at least 28.5% and cited continued AI and platform investment.
- Shares fell more than 5% after hours following the margin outlook.
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Workday, Inc. (WDAY) shares dropped more than 5% in after-hours trading on Nov. 25, 2025, after the company reported stronger revenue and subscription growth for its fiscal third quarter but set margin guidance for the next quarter below Wall Street expectations. Management attributed the outlook to continued investment in artificial intelligence (AI) and platform innovation.
Quarter Results and Margins
In fiscal third quarter 2026, Workday reported total revenue of $2.4 billion, up 12.6% year over year, with subscription revenue rising 14.6% to $2.2 billion. The company’s non-GAAP operating margin, a measure of operating profit excluding certain items, expanded to 28.5% from 26.3% a year earlier. GAAP operating margin increased to 10.7% from 7.6%.
Workday posted GAAP net income of $252 million, up from $193 million in the prior year. Diluted GAAP earnings per share rose to $0.94 from $0.72. On a non-GAAP basis, diluted earnings per share increased to $2.32 from $1.89.
The company held $6.9 billion in cash, cash equivalents, and marketable securities as of Oct. 31, 2025. Its board authorized a $5 billion share-repurchase program.
Guidance and Investment Outlook
Workday’s 8-K filing on Nov. 25, 2025, set fourth-quarter subscription revenue guidance at about $2.4 billion, reflecting roughly 15.5% year-over-year growth, with a non-GAAP operating margin of at least 28.5%. For fiscal 2026, the company projected subscription revenue near $8.8 billion, up about 14.4%, and a non-GAAP operating margin of approximately 29%.
Management said the outlook reflects ongoing investment in AI and platform innovation. CFO Zane Rowe said, “Our Q3 results were driven by continued progress across several key growth initiatives, as we accelerate innovation across the platform and bring exciting AI solutions to market.”
Investors responded to the margin guidance with after-hours selling, signaling concern that near-term operating leverage could be pressured by the company’s spending plans. Workday disclosed no new regulatory actions, approvals, or investigations in its results or related communications.
