Workday (NYSE:WDAY)

CAPS Rating: 2 out of 5


Player Avatar starz188 (99.72) Submitted: 10/12/2012 10:18:14 PM : Underperform Start Price: $48.74 WDAY Score: -37.18

I think this is a solid company, but I'm struggling to find a market cap of $7B+ for a firm with $134M in revenue and unprofitable.Revenue growth is admirable (98% YOY), and it's encouraging to see the net loss as a percentage of revenue falling. However, I think the market is overpricing just about everything that has to do with SaaS. Yes, these are the business solutions of the present/future. But the valuations need to be in line with revenue.I'm getting a little concerned about (what I see as) a growing bubble around the SaaS space. WDAY appears to have benefited from this positivity in the market, and that's great for the original founders and investors.I'll be curious to see how David Duffield and Aneel Bhusri manage their growth. There's some legacy success with PeopleSoft that I find intriguing. Granted they were the "victims" of a hostile take over by Oracle (a WDAY competitor). The 70% pop worries me, and I think in the long run, we'll see some corrections in the SaaS valuations. This includes WDAY.

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Member Avatar warrenout (99.46) Submitted: 10/15/2012 4:48:56 PM
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22.8 mil shares times current price of 51.94 = a market cap of $1.18 bil. Overpriced for today, but there's at least a reasonable chance that the price will never be lower. This is an exceptional company, IMO, and it should rapidly grow into and well beyone its current market cap.

Member Avatar starz188 (99.72) Submitted: 10/16/2012 2:37:41 PM
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I completely agree that it's a good company. It'll need a LOT of growth to fit into it's current market cap though; let alone any further market speculation on growth.

Right now it's current market capitalization is $8.38B at a stock price of $52.30. It's actually 160.29M tradable shares, not 22.8M.

As good as this company looks, and as positive as I see their future (assuming they EVENTUALLY get profitable), there's just not a rationale for the $8B+ valuation. Not when they're still losing money and not when their revenue is still in the $134M range.

Again, I believe there's a growing bubble around the SaaS space, and I point to valuations like this as evidence. Good company? Absolutely! Worth over $8B? No freaking way.

Member Avatar starz188 (99.72) Submitted: 10/16/2012 2:39:50 PM
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I'll add that I am not surprised I'm losing on this pick right now. This is a 5 year bet against the current valuation of WDAY. We'll see, eh?! =)

Member Avatar warrenout (99.46) Submitted: 10/17/2012 10:18:29 AM
Recs: 0

Thanks for your reply, and for the correction on the number of shares. I found a story that said 22.8, but googling the question again this morning, your number is clearly correct. So given the $8.33 B capitalization, I side with you on the probability that the price will most likely decline from here at some point, and most likely in the next few weeks.

Thanks again, and good luck to you!

Member Avatar starz188 (99.72) Submitted: 12/19/2012 3:32:16 PM
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And now a $9.4B valuation. On the news that....? That Oracle had a good fiscal Q2? That Stifel Nicolaus initiated coverage of the company?

Oh...maybe on the news that Q3 revenue grew 99% YOY? That's certainly positive, right?!

Wait... net income actually fell YOY in Q3 by 110%. Um? Earning per share were exactly the same at -($0.67) YOY too.

Perhaps more garish is the Q3 vs. Q2 numbers this year. Revenue climbed by $9.92M (16%) in the three months ending 10/31/2012, but net income fell by $14.5M (55%).

The financial numbers are all right there for everyone to see in black and white. Or, in red, as is the case with WDAY. I don't pretend to be a master investor, but I know overweight valuation when I see it. A company that is growing it's losses faster than it grows it's revenue, and at revenue levels in the low 9-figures, does NOT merit an almost-11-figure valuation.

Like CRM, this one might take a loooong time to eventually fall, but fall it will. There's just too much of a bubble around the SaaS space, and WDAY is simply the latest.

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