Workday Q2FY27 revenue beats estimates but guidance cut sharply

2 min read | Published on 28 Aug 2026, 06:00 PM |Updated on 28 Aug 2026, 10:13 PM

Reviewed by

Jubin VScanX News Team

Add as a preferred
source on Google

Key Highlights

Workday Q2FY27 EPS of $2.75 beat estimates, aided by a $1.52/share tax benefit
Revenue grew 12.8% YoY to $2.649 billion, exceeding consensus of $2.636 billion
Full-year FY27 sales guidance cut sharply to $9.940-$9.950 billion from $10.635-$10.660 billion
AI products accounted for over 25% of new ACV, generating more than $100 million
Company completed $5 billion buyback early and authorized a new $4 billion program

*this image is generated using AI for illustrative purposes only.

Workday Inc (NASDAQ: WDAY) reported second-quarter fiscal 2027 earnings per share of $2.75, surpassing the analyst consensus estimate of $2.61. The company’s quarterly sales reached $2.649 billion, a 12.8% year-over-year increase, slightly exceeding the expected $2.636 billion.

Despite the top-line and bottom-line beats, Workday significantly reduced its fiscal year 2027 sales guidance. The new range is set at $9.940 billion to $9.950 billion, down from the previous forecast of $10.635 billion to $10.660 billion. The company also expects third-quarter sales of $2.515 billion, below the $2.697 billion estimate.

Financial Performance

Diluted EPS rose significantly to $2.57 from $0.84 a year ago, including a $1.52-per-share tax benefit from an intra-entity transfer of certain intellectual property rights related to an internal legal-entity restructuring. Operating cash flow was $520 million versus $616 million a year earlier, and free cash flow declined to $460 million from $588 million.

Subscription revenue stood at $2.471 billion, up 14% year over year, while professional services revenue reached $178 million. U.S. revenue rose 12% to $1.97 billion, while international revenue increased 17% to $682 million.

Balance Sheet and Capital Allocation

Workday repurchased $1.3 billion of shares during the quarter, completing its previously announced $5 billion buyback six months ahead of schedule. The board authorized a new $4 billion open-ended repurchase program. The company ended the quarter with $3.4 billion in cash and marketable securities.

The company’s 12-month subscription revenue backlog reached $9.03 billion, up 14.2%, and total subscription backlog rose 8% to $27.4 billion. Gross revenue retention remained at 97%, with existing customers accounting for about 60% of subscription revenue growth.

AI Product Adoption

AI products generated more than $100 million in the second quarter new Annual Contract Value (ACV), representing over 25% of total new ACV. More than 5,500 customers now use an organic Workday agent, up over 35% quarter over quarter. AI SKU ARR neared $600 million, up more than 200% year over year and over 20% sequentially.

Other key developments include:

Adaptive Decision Intelligence reached general availability on July 31 and has been purchased by 170 customers.
Deployment Agent now has over 4,600 customers and 24,000 users, with second-quarter query volumes soaring nearly 5,500%.
Data Cloud closed six second-quarter deals, all for the Pro Edition.
Workday Extend apps grew over 90% year over year, with 3,000-plus custom apps and agents built since DevCon.

Analyst Reactions

Following the earnings announcement, several analysts adjusted their price targets for Workday stock:

Piper Sandler analyst Billy Fitzsimmons maintained a Neutral rating, raising the price target from $145 to $190.
Needham analyst Scott Berg kept a Buy rating, increasing the price target from $180 to $230.
Morgan Stanley analyst Keith Weiss retained an Underweight rating, lifting the price target from $145 to $180.
Cantor Fitzgerald analyst Matthew Vanvliet maintained an Overweight rating but lowered the price target from $220 to $205.

What the Numbers Show

The divergence between the strong quarterly performance and the sharp reduction in full-year guidance suggests potential near-term headwinds or a cautious outlook on deal conversion rates for the remainder of the fiscal year. While AI adoption drove more than 25% of new ACV, this growth did not translate into a raised long-term revenue projection. Additionally, the significant one-time tax benefit contributed heavily to the diluted EPS beat, masking underlying operational cash flow declines.

Market Response

Workday shares rose 6.94% to $207.00 on Friday following the results.

What specific macroeconomic or customer-specific factors are driving the significant downward revision in Workday's full-year sales guidance despite strong Q2 results?

How sustainable is the rapid growth in AI SKU ARR, and will AI-driven revenue be sufficient to offset potential slowdowns in core subscription renewals?

With the completion of the $5 billion buyback ahead of schedule, how will the new $4 billion open-ended repurchase program impact future cash flow and capital allocation priorities?

Analyst Action

The price target increase reflects updated valuation metrics. The Underweight stance indicates that the stock is currently overvalued relative to the new target price.

Metric	Previous	Current
Price Target	$145	$180
Rating	Underweight	Underweight

What the Numbers Show

The 24% uplift in the price target signals a positive revision in the firm's long-term valuation view, despite the continued negative recommendation for immediate investment.

What specific valuation metrics or macroeconomic factors drove the 24% increase in Workday's price target despite the maintained Underweight rating?

How does the new $180 price target compare to current market consensus, and what does this divergence suggest about institutional sentiment toward enterprise software stocks?

Given the Underweight rating, what catalysts would need to occur for Morgan Stanley to upgrade Workday to an Equal-weight or Overweight recommendation?