WestPark Capital analyst Curtis Shauger initiated coverage of Workday Inc. (NASDAQ:WDAY) on Monday with a Buy rating and announced a price forecast of $315.00.
Workday was founded in 2005 by Dave Duffield and Aneel Bhusri, both veterans of PeopleSoft. Their goal was to disrupt the vast enterprise resource planning (ERP) market through cloud-based solutions.
Initially successful in human capital management (HCM), the company has since expanded into financial software.
The analyst noted that despite surpassing an $8 billion annual revenue run rate, WDAY holds only about 2% of the $100 billion-plus ERP market, signaling significant growth potential.
Workday's growth momentum has eased as legacy ERP providers resist and the financials sector slows down its adoption of cloud technology.
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The company's rapid early success in human capital management (HCM) was aided by limited competition and a strong fit for cloud-based tools.
However, by the time Workday expanded into financials, major rivals like Oracle Corp. (NYSE:ORCL), SAP SE (NYSE:SAP) and Microsoft Corp. (NASDAQ:MSFT) had already introduced their own cloud offerings, making market penetration more challenging, noted Shauger.
Workday's AI strategy, introduced under the "Illuminate" banner at last year's Rising conference, is beginning to take form, but its impact on revenue remains uncertain.
The company has started monetizing select AI agents, yet much of its approach centers on integrating AI into existing products to boost demand and accelerate deal closures.
Recent workforce reductions at Workday demonstrate management's focus on balancing profitability with growth. After cutting 3% of staff in 2023 and another 8% this year, Shauger views these proactive decisions as positive steps.
With shares trading at historically low valuations, investors may be overlooking potential upside from Workday's AI initiatives. He said that if its AI strategy spurs even moderate growth, the stock could re-rate significantly.
Price Action: WDAY shares traded lower by 0.036% at $248.28 at last check Tuesday.
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