Workday's 1QFY27 results beat expectations, but Goldman Sachs maintains Neutral and cuts its target price
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Workday's 1QFY27 results beat expectations, but Goldman Sachs maintains Neutral and cuts its target price
Goldman Sachs believes Workday is showing a clearer value path in AI agents, Extend Pro, and ITSM, but the company remains in a transition year and a sustained re-rating of the stock will require proof of scaled deployment of AI and headless products.
- After 1QFY27, the stock indicated an after-hours gain of about 11%; subscription revenue was about 80 bps above expectations, EBIT margin was about 130 bps above market guidance, and EPS beat by about 6%.
- cRPO grew 15.5% YoY; Goldman Sachs estimates about 13.5% excluding M&A, improving from 4Q; FY27 subscription revenue guidance was maintained at 12%-13%.
- The company said 1Q was the best first quarter for NNACV growth in five years, and agentic ARR reached about $500mn, representing more than 30% of NNARR by Goldman Sachs' estimate.
- Workday outlined three monetization paths through its own AI agents, Extend Pro customer-built AI applications, and a third-party developer ecosystem of APIs/rails, while entering ITSM to expand TAM.
- Goldman Sachs maintained a Neutral rating, lowered its 12-month target price from $206 to $151, and shifted its valuation anchor from non-GAAP EPS to 24x GAAP Q5-Q8 EPS.
Report interpretation
Overview
This report is Goldman Sachs' review of Workday Inc.'s 1QFY27 results. The report argues that Workday started FY27 in better shape after a disappointing 4Q, with stable core subscription growth and AI-related revenue plus agentic ARR improving visibility into the future monetization path. However, Goldman still defines the next roughly 12 months as a transition period and maintains a Neutral rating.
Core views
The core view is: first, 1QFY27 results materially outperformed low expectations, with subscription revenue, EBIT margin, and EPS all better than market expectations; second, excluding the impact of M&A and AI revenue, Workday's core subscription revenue growth remained roughly stable at around 12%, indicating that the base business has not deteriorated materially; third, AI agents, Extend Pro, the third-party ecosystem, and ITSM expansion may help the company offset slower growth in the traditional seat-based SaaS model and potential pricing pressure; fourth, whether the stock can be re-rated sustainably will depend on the successful launch of in-house AI agents and headless/ITSM products and on product-market fit.
Analysis framework
Goldman Sachs compared the actual 1QFY27 results with market expectations, company guidance, and its own forecasts, and combined that with cRPO, subscription revenue, NNACV, agentic ARR, core growth adjusted for AI revenue, and changes in valuation multiples to judge fundamentals and the conditions for stock re-rating. On valuation, the report switched to 24x GAAP Q5-Q8 EPS as the basis for the 12-month target price and kept the framework aligned with valuation approaches used for large software peers such as ADBE and CRM.
Methodology notes
Actual 1QFY27 results versus market expectations and guidance
The report focuses on subscription revenue, EBIT margin, EPS, cRPO, and FY27/F2Q27 guidance to assess quarterly earnings quality and the sustainability of subsequent growth.
24x GAAP Q5-Q8 EPS
Goldman lowered the 12-month target price to $151 based on 24x GAAP Q5-Q8 EPS; this multiple is 2 turns above the application software coverage peer median to reflect faster GAAP EPS growth and a higher rule of 40.
Growth, financial return, valuation multiple, and composite factor percentiles
The chart shows that WDAY is relatively strong in financial return and composite factors versus the Americas coverage universe, with moderately high growth; versus Americas software peers, financial return remains strong, but the growth percentile is lower and the valuation multiple percentile is lower.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- WDAY.USCovered company stock
- Strengths
- 1QFY27 results were better than low expectations, with subscription revenue and margins beating estimates; cRPO growth improved; agentic ARR was about $500mn; financial return factors are strong; AI and ITSM provide potential incremental TAM.
- Weaknesses
- The next roughly 12 months remain a transition period; core subscription growth is only around 12%, so traditional seat-based SaaS growth may slow; growth percentile versus software peers is not high; there is still insufficient evidence for a sustained re-rating.
- Comparison
- Versus application software coverage peers, Goldman values Workday at 24x GAAP EPS, 2 turns above the peer median, citing roughly 3 percentage points faster GAAP EPS growth and a higher rule of 40; GS Factor Profile shows WDAY with a relatively high financial return percentile and a relatively low valuation multiple percentile versus Americas software peers.
- Risks
- The pace of share gains, M&A execution, the impact of AI on HCM software, and product-market fit for in-house AI agents and headless/ITSM products.
Key data
- 12-month target price$151.00Lowered from the prior $206, based on 24x GAAP Q5-Q8 EPS.
- Current price$121.85Price disclosed in the report.
- Implied upside23.9%Based on the target price and current price.
- RatingNeutralGoldman Sachs maintained its Neutral rating.
- Implied post-1QFY27 stock performance+11%The report says WDAY indicated about an 11% gain after earnings.
- Subscription revenue beatabout 80 bpsSubscription revenue was above market expectations.
- EBIT margin beatabout 130 bpsHigher than market expectations/company guidance.
- EPS beat6%Based on FactSet comparison.
- cRPO growth15.5% YoYGoldman Sachs estimates about 13.5% excluding M&A.
- FY27 subscription revenue guidance12%-13%The company kept full-year subscription revenue growth guidance unchanged.
- agentic ARRabout $500mnBy Goldman Sachs' estimate, more than 30% of NNARR.
- FY2027E/FY2028E/FY2029E revenue forecasts$10,662mn / $11,752mn / $12,856mnRaised from the prior $10,644mn / $11,722mn / $12,811mn.
Impact & implications
In the short term, Workday's quarterly results eased market concerns about growth slowing after 4Q and improved visibility into AI monetization; in the medium term, the traditional seat-based SaaS model faces slower growth and potential pricing pressure, and whether AI agents, Extend Pro, the third-party ecosystem, and ITSM can create meaningful incremental revenue is the key to valuation recovery. The lower target price indicates a more conservative valuation approach anchored to GAAP earnings, but it still leaves about 23.9% upside to the target price.
Risks
- Share gains may be slower than expected.
- M&A integration and execution risk.
- AI may not only add incremental demand to HCM software but could also change traditional software seat pricing and demand patterns.
- If in-house AI agents, headless enterprise software, and ITSM products are rolled out poorly or lack product-market fit, stock re-rating could be limited.
- Slower growth in the traditional seat-based SaaS business and potential pricing pressure.
What to watch
- The rollout pace, customer adoption, and revenue contribution of in-house AI agents.
- Whether agentic ARR can keep growing from about $500mn and convert into sustainable subscription revenue.
- Adoption and monetization of customer-built AI applications on Extend Pro.
- Progress in the third-party developer ecosystem on Workday APIs/rails.
- Whether ITSM can expand TAM and demonstrate Workday's domain expertise in the employee lifecycle.
- Whether cRPO and NNACV growth continue to improve.
- Whether FY27 subscription revenue guidance of 12%-13% is maintained or raised.