It isn’t every day that a vendor in HR is called “an emerging force to be reckoned with” by a top market analyst. But that’s exactly what happened when Workday, a maker of web-based HR software, raised $637 million in its initial public offering last Friday.
Workday soared on its open in early trading Friday morning, opening at $48.05 per share. The company is now is valued at almost $4 billion, 39 times its revenue over the past 12 months. The valuation is higher than any of the 13 U.S. business software companies to go public since late 2011, according to Bloomberg.
Workday had a net loss of $47 million on revenue of $119 million for the six months ending July 31. Subscription revenue was $247 million for the same six-month period, a sign that the company is growing quickly.
And many people are sitting up and taking notice.
Mark Murphy, an analyst at Piper Jaffray & Co., wrote in a report that Workday’s share of the $15 billion human resource software market could increase more than fivefold in the next three to five years.
And while its client list remains on the small side, Workday’s software has already squeezed out veterans like Oracle and SAP AP at big companies like Flextronics International Ltd., Kimberly-Clark Corp., Sun Life Financial Inc. and Lenovo Group Ltd.
Bill Kutik, technology columnist for Human Resource Executive magazine, writes that the company’s main motivation isn’t what you think.
“Workday is going public for one major reason and it’s not money,” said Kutik, “The major reason is for the respect it brings them with large-company clients, who feel much more comfortable working with a vendor that has to meet the accounting requirements of the SEC. In my mind, that is the biggest reason. It will increase their position of being a serious cloud-centric HR option.”
But in fact, the motivation may have a darker side.
Founded in 2005 by former PeopleSoft executives David Duffield and Aneel Bhusri, Workday’s conception involves a backstory of revenge.
According to Wired.com, Duffield and Bhusri made PeopleSoft one of the top companies to work for. Then Oracle’s Larry Ellison presided over a bitter takeover of the company, leading to the gutting of PeopleSoft.
Last February Oracle bought another cloud player, Taleo for almost $2 billion. Now it’s Workday’s turn in the spotlight, and the two will be competing against each other in an already crowded market.
Customers are already lumping in Workday as a member of the big three despite a lower market share.
“[Workday] now stands with the sleeping giants of Oracle and SAP, which have woken up to the competitive danger of SaaS [Software as a Service] to their huge on-premise installed base,” Kutik said.
Competition among the three is likely to become cutthroat. But analysts think that Workday may have the upper hand as companies look to engage software that transforms the user experience and builds products that HR managers want for talent management.
“It’s the adoption factor that’s big here,” R “Ray” Wang, principal analyst and CEO of Constellation Research Inc., said.
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