Evercore has downgraded Workday to an In Line rating and cut its price target by $40, bringing the new target to $160. The move came after Workday issued fiscal 2027 subscription revenue guidance that fell short of expectations, and investors reacted sharply with the stock down roughly 9% in Wednesday premarket trading.
Workday forecast subscription revenue for fiscal 2027 in a range of $9.925 billion to $9.950 billion, below consensus estimates of about $10 billion. The guidance suggested a moderation in growth even as the company reported a fourth quarter that exceeded Wall Street projections on both earnings and revenue.
Evercore described the reset in fiscal 2027 guidance, issued alongside a CEO transition, as prudent. However, the brokerage cautioned that increased spending tied to artificial intelligence initiatives will limit the potential for margin expansion in the near term. In that context, Evercore said a previously stated fiscal 2028 operating margin target of about 35% now appears unlikely to be achieved; Workday has indicated an adjusted operating margin for fiscal 2027 of roughly 30%.
For the fiscal first quarter ending April 30, Workday anticipates subscription revenue of $2.335 billion, representing year-over-year growth of 13%, and a non-GAAP operating margin of 30.5%.
In the fourth quarter, Workday reported adjusted earnings of $2.47 per share, beating estimates of $2.32, while revenue came in at $2.53 billion versus expectations of $2.52 billion.
Evercore characterized Workday’s longer-term approach as a "steady core plus AI ramp" strategy. Management’s planning does not assume a material contribution from acquisitions or other inorganic actions in fiscal 2027, keeping the focus on organic product and AI development.
The brokerage also highlighted timing delays in several larger deals across federal, SLED (state, local and education) and commercial channels. Company executives framed those setbacks as timing-related rather than signs of pipeline deterioration.
On the AI front, Workday reported more than $100 million in new annual contract value from emerging AI products in the fourth quarter, bringing AI-related annual recurring revenue to more than $400 million. The company is moving toward deploying role-based agents embedded within business processes. According to management, 12 such agents are progressing toward general availability and over 400 customers are participating in early access programs.
What this means - Evercore’s adjustment reflects a cautious view on near-term margin upside as Workday ramps AI investments while navigating timing shifts in large deals. The company’s recent quarter showed resilience in core metrics but the guidance reset tempered investor expectations.