WDAY • 10-Q • Q3 2025 • Positive

Workday Accelerates Growth with 16% Jump in Cloud Revenue, Margins Expand

November 26, 2025 • 1 min read

TL;DR

Workday demonstrated robust growth with subscription revenue reaching $2.24B (+14.5% YoY) while expanding operating margins to 10.6% (+260bps YoY). The company's restructuring efforts ($172M charge) and strategic acquisitions are reshaping its competitive position in enterprise cloud. Professional services revenue declined 6.5% YoY as the company shifts focus to higher-margin subscription business. Strong cash position ($6.8B) and improving operational efficiency suggest accelerating momentum in

Financial Performance Overview: Total revenue grew 12.6% YoY to $2.43B, driven by subscription services acceleration to 14.5% YoY growth. Operating margin expanded 260bps YoY to 10.6%, reflecting improved operational leverage and restructuring benefits. Professional services revenue declined 6.5% YoY to $188M as planned, while subscription gross margins improved 130bps to 82.4%. Cash and investments position remains strong at $6.8B despite $1.4B in share repurchases YTD.
Strategic Initiatives and Operational Changes: Management executed significant restructuring ($172M charge) focused on operational efficiency and market alignment. Recent acquisitions including HiredScore and Ozlo strengthen AI capabilities and talent management offerings. R&D investment increased 2.9% YoY to $666M (27.4% of revenue) with emphasis on AI integration. Go-to-market strategy shifts toward enterprise accounts showing early positive results with improved sales productivity metrics.
Market Position and Competitive Dynamics: Workday maintains leadership in cloud HCM while expanding its financial management footprint. Customer retention remains above 95% despite competitive pressure from Oracle and SAP. Strategic partnerships with Microsoft and AWS strengthen cloud infrastructure position. Enterprise customer additions accelerated QoQ, particularly in financial services and healthcare verticals. International expansion showing momentum with EMEA growth outpacing company average.
Operational Efficiency and Profitability: Operating leverage improved significantly with total operating expenses growing slower than revenue at 8.9% YoY. Sales and marketing efficiency gains evident with expenses at 27.8% of revenue vs 28.7% year ago. Subscription gross margins expanded 130bps YoY to 82.4% reflecting platform scalability. Restructuring efforts on track to deliver $200M+ in annual savings by FY2026.
Growth Catalysts and Material Risks: AI integration across product suite positions company for next growth phase. Enterprise migration to cloud financials represents major TAM expansion opportunity. Key risks include elongating sales cycles in uncertain macro environment and increasing AI investment requirements. Geographic expansion and middle-market penetration provide additional growth vectors. Management guidance suggests accelerating momentum into FY2026.

Revenue

$2.43B ( YoY, QoQ) with subscription at $2.24B ( YoY)

↑ +12.6%

Rd Spend

$666M (+2.9% YoY) representing 27.4% of revenue

Net Income

$252M ( YoY) with net margin

↑ +30.6%

Gross Margin

(+130bps YoY) for subscription services

↑ 82.4%

Free Cash Flow

$1.1B YTD with conversion rate

↑ 15.7%

Operating Margin

(+260bps YoY) reflecting improved efficiency

↑ 10.6%

Growth Indicators

Enterprise customers YoY

↑ +12%

Arr Or Bookings ↑Subscription backlog $17.5B (+21% YoY)

Retention Metrics ↑>95% gross retention rate maintained

Key Risks

Elongating enterprise sales cycles in uncertain macro environment
Increasing AI investment requirements impacting margins
Intensifying competition from legacy vendors' cloud transitions
Currency exposure from international expansion

Key Opportunities

Enterprise cloud financials migration ($35B+ TAM)
AI integration driving platform value and stickiness
Geographic expansion particularly in EMEA and APAC
Industry-specific solutions in regulated verticals

Bottom Line

Workday's Q3 results demonstrate accelerating momentum in core business while successfully executing strategic initiatives in AI and operational efficiency. The combination of 14.5% YoY subscription revenue growth and 260bps operating margin expansion validates the company's platform strategy and market position. Strategic investments in AI capabilities and recent acquisitions position Workday well for the next phase of enterprise cloud adoption. Key metrics to watch include subscription revenue growth rate, operating margin trajectory, and AI adoption metrics across the customer base. The company appears positioned for accelerating growth into FY2026, though macro uncertainty and competitive dynamics require continued execution focus.