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Workday beat Wall Street expectations for second-quarter revenue on Thursday and announced a $1 billion stock buyback plan, sending the shares of the human resource software provider up around 11% in extended trading.
Corporate spending on human resource and payroll has been rising especially in small-to-medium business segments, according to analysts, despite a cooling labor market.
However, lower hirings weighed on Workday's outlook as it forecast third-quarter subscription revenue below estimates.
Analysts also expect longer sales cycles due to higher borrowing costs and inflation. "We see a macroeconomic environment consistent with last quarter," CFO Zane Rowe said.
Company executives said in a post-earnings call that Workday is revising its medium-term plans to accelerate margin expansion, while moderating the pace of subscription revenue growth.
"There were some positive nuggets in management's outlook including... a 17% increase in subscription revenue and a $1 billion share buyback program," said Michael Ashley Schulman, chief investment officer at Running Point Capital.
Workday raised its forecast for full-year adjusted operating margin to 25.25% from 25%. It forecast third-quarter subscription revenue of $1.96 billion, compared with expectations of $1.97 billion, according to LSEG data.
Subscription revenue of $1.90 billion was in line with second-quarter estimates. Total revenue of $2.09 billion, however, beat expectations of $2.07 billion.
Adjusted operating margin stood at 24.9%, while the Visible Alpha consensus was 24.6%.
The company earned 49 cents per share, compared with 30 cents a year ago.
(Reporting by Zaheer Kachwala in Bengaluru; Editing by Shilpi Majumdar and Arun Koyyur)