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Lone Pine Capital Discloses $200M Stake in Workday

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Lone Pine Capital is now the fifth largest shareholder of Workday Inc (NYSE:WDAY) according to a 13G filed with the SEC this afternoon. Lone Pine Capital owns 3,522,285 shares equal to 9.35 percent of the float. Shares of Workday closed at 58.15 making the stake owned by Steve Mandel’s hedge fund worth over $200 million. As of 12/31, the hedge fund disclosed a stake of 980,000 shares or 2.60 percent of the company.

Workday, Inc. is a provider of enterprise cloud-based applications for human capital management (HCM), payroll, financial management, time tracking, procurement and employee expense management.

Workday Inc (NYSE:WDAY)  has a history of operating losses, resulting in an accumulated deficit of $402M as of 4Q13. In FY13, the company ran a -33% operating margin, as relatively high R&D costs (36% of revenue) and a relatively heavy mix of (inherently) low-margin services pressure margins. Also, WDAY’s sales and marketing costs comprised a hefty 44% of revenue, driven by customer acquisition costs and WDAY’s high growth rate. DAY spent about $800,000 in sales and marketing per each new customer acquired in FY13 (there were 121 new customers in the year), assuming the bulk of sales and marketing spending is on activities that generate new customers, either directly (e.g., sales commissions) or indirectly (e.g., branding and lead generation).

The good news – Workday Inc (NYSE:WDAY)’s growth is driving value for shareholders. WDAY has renewal rates consistent with other enterprise application companies (e.g., in the high 80% or low 90% range), indicating that the NPV of a new customer greatly exceeds the upfront sales and marketing spend on acquiring the customer. WDAY’s gross margin was 58% in FY13, and the average revenue per customer was $740,000, counting customers signed prior to the start of the year.

For the fiscal year ended 31 January 2013, Workday Inc revenues increased from $134.4M to $273.7M. Net loss applicable to common stockholders increased 50% to $119.8M. Revenues reflect United States segment increase from $111.6M to $226M, Other Foreign segment increase from $22.9M to $47.7M. Higher net loss reflects Sales and Marketing increase of 75% to $123.4M (expense), Research and Development increase of 66% to $102.7M (expense).


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