HR and payroll software company, Workday Inc., filed its S-1 form declaring its intention to go public and to raise $400 million in an IPO.
In the filing, Workday describes itself as follows:
The Bedford Park Opportunities Fund returned 13.5% net of all fees and expenses in the second quarter of 2021, bringing its year-to-date return to 27.6%. Q2 2021 hedge fund letters, conferences and more In the fund's second-quarter investor letter, which ValueWalk has been able to review, Jordan Zinberg, the President and CEO of Bedford Read More
“Workday is a leading provider of enterprise cloud-based applications for human capital management (HCM), payroll, financial management, time tracking, procurement, and employee expense management. We achieved this leadership position through our innovative and adaptable technology, focus on the consumer Internet experience, and cloud delivery model. Further, we believe we are the only company to provide this complete set of unified cloud-based applications to enterprises. Our applications are designed for global enterprises to manage complex and dynamic operating environments. We provide our customers highly adaptable, accessible, and reliable applications to manage critical business functions that enable them to optimize their financial and human capital resources.”
Workday was founded in 2005 by ex-PeopleSoft execs, Dave Duffield and Aneel Bhusri. Greylock Partners and New Enerprise Associates were among the early investors in the company. Other investors include Morgan Stanley (NYSE:MS), who pumped in $20 million in October 2011 for 1.5 million shares, valuing Workday at over $2 billion, and Allen & Co, who invested $3 million.
The company originally filed with the SEC in June, under a confidentiality provision of the Jumpstart Our Business Act (JOBS Act) that allows companies having turnover below $1 billion to file secretly. However the filing was brought to public light by Reuters in an Exclusive, dated July 17. So much for “confidentiality!” Read more about the JOBS Act and IPOs on Valuewalk here, and here.
Workday marks its entry into the hot-selling segment of software, marketed as “software-as-a-service” (SaaS) where customers pay for the cloud-centric software on a subscription basis, depending on the number of users. This avoids costly installation and maintenance, were it done on the customers’ own systems.
That takes it directly into competition with IT majors, such as Oracle Corporation (NASDAQ:ORCL). Marektwatch cites Wedbush analyst Steve Koenig as saying: “There’s incredible pent-up demand for the approach Workday is taking. I’ve talked to customers who are very frustrated with the amount of money they pay for maintaining their Oracle Corporation (NASDAQ:ORCL)-PeopleSoft implementation with relatively few users.”
However, investors need to watch out for some of the risk factors of the issue as per the S-1:
- We have a history of cumulative losses and we do not expect to be profitable for the foreseeable future.
- We have a limited operating history, which makes it difficult to predict our future operating results.
- The markets in which we participate are intensely competitive, and if we do not compete effectively, our operating results could be adversely affected.
There are others mentioned, such as the risk of a security breach, the long sales cycles, the dependence on third-party data centers, and that the majority of revenues come from its Human Capital Management application, rather than the full suite of products.
Investors need also to be aware that recent IPOs, such as Facebook Inc (NASDAQ:AAPL) and Zynga Inc (NASDAQ:ZNGA), have inflicted severe losses on investors and that this is no easy path to riches. Read about these and other IPOs on Valuewalk here.
But there have been success stories within the realm of cloud services.
Splunk Inc (NASDAQ:SPLK), a firm that offers Web-based data analytics, is quoting at $34.85 up 14.26 percent today. It issued at $17.00 in April.
Guidewire Software Inc (NYSE:GWRE), a firm that offers cloud-based services for property and casualty insurance customers, is quoting at $28.28 up 0.68% today. It issued at $13 in January.