AI Agents, DOGE, and GTM with WDAY Earnings Q3 '24

(Happy Thanksgiving to my American Readers!)

Workday earnings released 11/26, with a solid quarter, coming at $2.08B for the quarter, up 16.68% year-on-year. Respectable performance, with a number of insights on AI, key markets (Government, Europe), and go-to-market channels (system integrators). Let’s break down 5 key takeaways.

1) Gen AI: It works and companies will pay for it

Workday has gone big into AI. Acquiring multiple companies (HiredScore, Evisort), numerous corporate investments into AI startups, and AI product features. According to Workday, it’s paying off.

30% of Workday’s customer expansions involved one or more AI SKUs (Talent Optimization, Extend Pro, or Recruiter Agent), and customers pay a premium these SKUs. Recruiter Agent boosted the average selling price of Workday’s recruiting solution by almost 150%.

Workday has over 4,000 customers on its recruiting platform, and its AI SKUs have penetrated single-digital percentage. According to Workday, customers that use AI have seen:

• A 30% reduction in HR case volume (Workday Assistant)

• A 39% reduction in turnover (Talent Optimization)

• A 30% gain in recruiter productivity (Recruiter Agent)

The products work, customers pay a premium for them, and there is significant opportunity. AI is far from the only growth driver. Selling to Government is going well for Workday.

2) Government is big opportunity, DOGE an accelerant

In the US, Government spending (Federal, State, and Local) makes up close to 40% of GDP1. In a state like California, in the past two years, nearly 97%2 of all jobs added were from Government. Barely 3% were from private enterprise. Mastering how to sell to Government may be a requirement for nearly all startups going forward. Workday is showing clear success in this area.

Workday saw success in Q3 with Governments, “In Q3, the Defense Intelligence Agency expanded its business with Workday. In Lake County, Illinois, Maryland General Assembly, New Jersey Institute of Technology, and University System of Georgia all chose Workday to modernize their systems and meet the rising expectations of their constituents.”

And, Workday’s CEO, cites the ‘Department of Government Efficiency’ as a tailwind in sales. Workday CEO, Carl Eisenbach, responding to an analyst question from Alex Zukin, from Wolfe Research,

[W]e're really focusing on the federal government going forward. We think there's a huge opportunity there with probably more than 80% of HCM and ERP still on premises that hasn't moved to the cloud. And we think we're catching it at an inflection point right now, which is why we're investing so heavily in building out a secure platform. At the same time, post-election and with DOGE coming out, people are absolutely looking to drive more economies of scale and more efficiency. And I can tell you supporting these on premises antiquated systems is not a way to do that. So we think this will only be a tailwind for us as we think about the federal government business going forward.

Government is working, but European, private sector deals continue to take longer.

3) European industry is still a challenge

Workday CEO noted european private sector deals continue to see “scrutiny”, taking longer than other markets. Workday seems committed to Europe because, “50% of the addressable market for Workday is outside the US”, “While only 25% of our revenue comes from outside the US today.”

While Europe struggles, Workday’s partnership strategy, working through consultants and System Integratorsm is making progress.

4) Partners work for go-to-market

Workday recently decided to focus on building out its partnership system (something SAP and Oracle focused on in the 1990s). Their efforts are showing promise. For the earnings call:

Our partner ecosystem has grown nearly 5x in just 18 months and is more diverse than ever. Our partners are becoming increasingly critical to our growth, sourcing over 10% of our net new ACV in Q3, and a similar percentage of our new pipeline.

Workday continues to expand its partnership, moving to APAC and Japan with NTT Data (a large Japanese system integrator). Workday’s overall, product strategy, bundling HR and Finance offerings, continue to show progress.

5) Workday’s Full Suite and FINS strategy working

Workday’s strategy of moving from HR into Finance, with a full suite, FINS offering continues to work. Several other HCM players are starting to copy this strategy, and, fuller suite strategy continues to work. More than 35% of Workday’s new "core” customers were full suite. This strategy is apparently even more effective in the Government vertical. Workday CEO, Carl Eisenbach, stated 90% of its wins in the government vertical were full suite.

Key Workday learnings

Workday earnings demonstrate:

• People will pay for AI product offerings

• Government is a material sector, and DOGE is potentially a tailwind

• Europe is a slower segment

• System integrator channels work

• Partnership strategies with System Integrator work for enterprises

From a startup perspective, the willingness to pay for AI is reassuring. For mid market companies looking to expand, the success in Government, System Integrators, and Full suite shows promise, too.