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Workday (WDAY) reported solid 2Q26 results, surpassing earnings expectations with EPS of $2.21, reflecting a robust 26% yr/yr increase, consistent with the company’s historical trend of beating earnings forecasts. However, despite this positive performance, the stock is trading sharply lower as subscription revenue of $2.169 bln merely met consensus expectations, and Q3 subscription revenue guidance of $2.235 bln, implying 14% yr/yr growth, disappointed investors expecting a stronger outlook.

• The slowing growth in WDAY’s subscription revenue, a critical driver of its business model, has been a persistent concern for investors, contributing to the stock’s lackluster performance. In Q2, subscription revenue grew 14% yr/yr, down from 17% in 2Q25 and 16% in 3Q25, with 3Q26 guidance also projecting 14% growth.
• This deceleration may stem from macroeconomic pressures, including customers tightening IT budgets and reassessing spending amid economic uncertainties. Additionally, increased competition in the human capital management and financial software sectors -- particularly from Oracle (ORCL) -- may be pressuring WDAY’s market share, as enterprises prioritize cost optimization over expansive software investments.
• WDAY’s strategic focus on AI innovation remains a key growth pillar, with the company reporting an impressive 100% net-new AI annual contract value (ACV) growth in Q2. Recent AI product launches include Workday Developer Co-Pilot, which simplifies AI integration for developers, and the Workday Agent Partner Network, enabling third-party developers to build AI-driven applications on its platform.
• Additionally, WDAY’s acquisitions of Flowise, a low-code AI agent builder, and the planned acquisition of Paradox, a conversational AI platform for recruiting, enhance its capabilities in automating tasks like job application screening, interview scheduling, and workforce planning. Despite these advancements, the new AI tools have yet to significantly boost subscription revenue growth, suggesting that monetization and broader adoption may take time to materialize.
• The acquisition of Paradox, a company specializing in AI-powered recruiting automation, represents a strategic move to bolster WDAY’s talent acquisition offerings, though financial terms were not disclosed. Paradox’s technology, which leverages conversational AI to streamline job applications and improve candidate response times, aligns well with WDAY’s focus on enhancing HR efficiency for high-volume frontline industries. The acquisition, expected to close in 3Q26, could strengthen WDAY’s competitive positioning in the talent management space, particularly as enterprises prioritize streamlined hiring processes.
• However, with guidance indicating the deal’s inclusion in the modestly raised FY26 subscription revenue forecast to $8.815 bln from $8.80 bln, the acquisition appears to have limited immediate revenue contribution.
• A bright spot in WDAY’s Q2 performance was its continued margin expansion and profitability growth, with non-GAAP operating margin improving to 29.0% from 24.9% in the prior-year period. This 410 bps increase was driven by operational efficiencies, disciplined cost management, and a favorable revenue mix skewed toward high-margin subscription revenue, which accounted for 92% of total revenue. The company’s raised FY26 non-GAAP operating margin guidance to 29% from 28.5% underscores its ability to balance AI-driven investments with profitability.

WDAY delivered solid Q2 results, particularly in earnings growth and margin expansion, reinforcing its operational strength. However, the in-line subscription revenue and cautious Q3 guidance fueled concerns about slowing growth, contributing to the stock’s post-earnings decline.