2023-08-29 15:00:00
The Eschenbach Effect began to reveal itself in Workday’s fiscal Q2 as customer commitments for future business jumped 23%, the Eastern, Middle Eastern, and Africa (EMEA) business stabilized, and the company raised its full-year guidance for subscriptions revenue.
Workday also used the earnings call last week to buttress its position as an artificial intelligence (AI) and machine learning (ML) powerhouse, as chairman and co-CEO Aneel Bhusri further outlined plans for how Workday intends to continue differentiating itself via its aggressive deployment of advanced technology not only within its products and services but also across its internal operations.
Here’s a quick recap of some key numbers for the quarter ended July 31, which had financial analysts gushing with praise over the performance of the #7 company on the Cloud Wars Top 10.
- fiscal-Q2 subscription revenue was up 19% to $1.62 billion;
- full-year guidance for subscription revenue was boosted to regarding $6.58 billion, which would equate to 18% annual growth;
- 24-month subscription-revenue backlog was $10.27 billion, up 23%;
- total subscription-revenue backlog jumped 32% to $17.85 billion;
- gross revenue retention rate was 95%, and net revenue retention rate was more than 100%;
- early renewals in Q2 “exceeded our expectations”; and
- Workday said customers are continuing to commit to “longer contract duration on both net new deals and renewals, which speaks to our customers’ continued commitment to our platform and is causing our total backlog growth to significantly outpace growth in the 24-month backlog.”
The Eschenbach Effect
While Workday has always been a growth company, its prospects for accelerated revenue performance have risen sharply since the arrival six months ago of Eschenbach, a legendary Silicon Valley figure first from his time at VMware during its hypergrowth years and then at Sequoia Capital as a board member of and advisor to several wildly successful tech firms. (You can read all regarding that in my analysis from early this year called “Who is Karl Eschenbach, and Why Is Workday Betting its Future on Him?“)
Cofounder Bhusri brought Eschenbach aboard in January for three primary reasons: Eschenbach’s track record in driving high growth in the enterprise-software business; to enable Bhusri to devote most of his attention to his first loves of products and strategy; and because as a longtime member of Workday’s board, Eschenbach knew the company, its customers, and its highly competitive market.
Bhusri has said that he began wooing Eschenbach for the co-CEO job a few years ago, and it was surely no coincidence that Eschenbach took the lead role in last week’s fiscal-Q2 earnings call: following all, in February of next year, as Workday begins its new fiscal year, Bhusri will relinquish his co-CEO title and become full-time executive chairman while Eschenbach takes over as sole CEO.
The Game Plan
In that earnings call, Eschenbach outlined four factors that he believes enable Workday to differentiate itself from competitors such as Oracle, SAP, and Microsoft:
- “the mission-critical nature of our platform”;
- customers are consolidating from best-of-breed apps to a fully integrated platorm;
- Workday’s unique approach to AI and ML; and
- the company’s unique talent and culture.
Final Thought
Six months is not enough time to draw a detailed picture of Eschenbach’s impact on Workday, but the Q2 results surely indicate that his strongly worded desire to infuse “more giddy-up” into the sales organization is taking hold.
But with future prospects looking strong — witness the raised guidance for subscription revenue this year, as well as the 24-month RPO growth rate of 23% along with long-term RPO growth rate of 32% — and a new wave of generative AI products and services coming soon, I believe it’s clear that the Eschenbach Effect has been and will continue to be profound for Workday.
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