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Workday (WDAY) delivered strong 1Q26 results with EPS of $2.23 comfortably exceeding expectations, continuing a consistent trend of significant EPS beats in recent quarters. The upside was primarily driven by healthy subscription revenue growth of 13.4%, disciplined cost management, and a notable expansion in non-GAAP operating margins. However, despite the strong EPS performance, WDAY is trading sharply lower, reflecting investor disappointment with the company’s cautious Q2 subscription revenue guidance, which was in-line with expectations at $2.16 bln, and its decision to reaffirm, rather than raise, its FY26 subscription revenue guidance of $8.8 bln.

• Subscription revenue, the cornerstone of WDAY’s business model and a critical demand metric for investors, grew 13.4% yr/yr to $2.059 bln, slightly exceeding the company’s guidance of $2.05 bln. This growth was propelled by strong adoption of WDAY’s AI-enhanced enterprise software solutions, particularly in financial services and healthcare, with notable customer wins and expansions among clients like Dover Corporation, Mutual of Omaha, and United Airlines. 
  • The introduction of new AI-driven products, such as Illuminate Agents and Evisort’s AI-powered contract management solutions, further supported revenue growth by addressing evolving customer needs. WDAY commented that "new annual contract value across AI products more than doubled yr/yr", indicating strong customer adoption of their AI offerings.
• However, the 13.4% yr/yr growth marks a deceleration from the 15.9% growth reported in 4Q25 and 18.8% in 1Q25, reflecting challenges such as moderating headcount growth across WDAY’s customer base and heightened deal scrutiny amid macroeconomic uncertainties. These factors have constrained demand in certain verticals, contributing to a more tempered growth trajectory despite the company’s strong product portfolio and focus on AI and international markets.
• WDAY’s non-GAAP operating margin expanded significantly to 30.2% in 1Q26, up from 25.9% in the same period last year, a 430-basis-point improvement that underscores the company’s focus on operational efficiency and cost discipline. This margin expansion was driven by several factors: scalable revenue growth from high-margin subscription services, reduced reliance on lower-margin professional services, and strategic cost management despite ongoing investments in AI, partner ecosystems, and international expansion.
  • Reflecting confidence in sustained margin improvement, WDAY raised its FY26 non-GAAP operating margin guidance to 28.5% from 28.0%.
• Looking ahead, WDAY’s Q2 subscription revenue guidance of $2.16 bln, representing 13% yr/yr growth, met but did not exceed analyst expectations, contributing to investor skepticism about the company’s near-term growth prospects. This guidance reflects a further slowdown in growth. More notably, WDAY’s decision to reaffirm its FY26 subscription revenue guidance of $8.8 billion, rather than raising it, has fueled market disappointment, as investors had anticipated a more optimistic outlook given the Q1 beat.

WDAY’s Q1 results showcased its ability to consistently deliver sizable EPS beats, driven by healthy subscription revenue growth and significant margin expansion. However, the cautious Q2 and FY26 subscription revenue guidance, which only met expectations and was not raised, has overshadowed these achievements, contributing to a sharp post-earnings stock decline.