EMEA enterprise folks scrutinize deals more closely – and it's hurting Workday

SaaS application biz Workday is lowering revenue forecasts for the year after saying it is feeling the squeeze of larger customers taking longer to sign off on deals amid a wavering economy.

For the three months ended April 30, Workday’s Q1 of its fiscal 2025, the company reported an 18.1 percent year-on-year jump in revenue to $1.99 billion, including $1.815 billion in subscriptions.

Operating income was $64 million, or 3.2 percent of revenue, and this compared favorably to a $20 million operating loss in the corresponding quarter of the prior financial year.

"Our first quarter is always our seasonally slowest," said Carl Eschenbach, CEO at Workday. "We had clear areas of outperformance including healthcare, public sector, and continued strength in financials and full platform wins.

"But we also closed fewer large deals than last Q1, notably in EMEA. When purchase decisions are being made, our win rates remain strong. But within the quarter, we experienced increased deal scrutiny as compared to prior quarters.

"And we are seeing customers committing to lower headcount levels on renewals compared to what we had expected. We expect these dynamics to persist in the near term, which is reflected in our revised FY 2025 subscription revenue guidance."

The prior forecast was for revenue of between $7.725 billion and $7.775 billion but now the remodeled projection is between $7.7 billion and $7.725 billion. On the back of this, the share price fell 11 percent in the extended session.

Eschenbach says Workday hadn't seen this level of "deal scrutiny" in the past 18 months as other tech providers reported slowing sales.

"I would also say that some of that may be because we're talking to our customers about full platform deals. We're no longer just talking about HCM deals. And when we sell full platform, particularly in the large enterprise market, we are selling to multiple buyers."

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Workday obviously "can’t control the macro," he added, but is driving more sales from "partners" including Google Cloud Platform, which is now selling Workday services via its marketplace.

Customer wins in the quarter included one with the Defense Intelligence Agency, supporting "recruitment and onboarding efforts" via Workday’s HR platform, and services that went live included those at Electrolux, and supermarket chain Asda. Some 65 million customers generated more than 800 million transactions on the platform, the company said.

Cameron Naylor, analyst at Megabuyte, said today: "It's well known that Workday's first quarter is always seasonally slowest but, this time round, EMEA isn't quite playing ball and is a major factor in the FY25 subscription revenue growth downgrade." ®