Workday IPO – First Impressions


So the much anticipated IPO of Workday is here. http://www.sec.gov/Archives/edgar/data/1327811/000119312512375787/d385110ds1.htm#toc385110_13  . Pretty detailed S-1 too. I just flipped through it and also read Dennis Howlett’s blog on it on ZDNET.

The best part of this is that the founders have a long term plan to keep control of the company, and virtually eliminate chances of a hostile take over. I wonder if this will get punished by market or not – probably it will, just for the short term. Customers should like this arrangement – so in long term this should work in company’s favor.

No surprises on revenue – and excellent growth rate. And while COGS is high, it is not that bad given they are young and need to invest in getting big client names, product development, marketing and so on. That will generally stabilize in future and make the company more profitable.

It is interesting to note in the S-1 that “…most of our non-cancellable contract terms have averaged four years“. I fully understand the reason to do this. I just wish some cloud pundits stop saying SaaS companies somehow always do “pay by drink” and “no lock-in like legacy vendors” .  There is plenty of lock-in for SaaS players, and I never really understood why some pundits try to portray otherwise. Customers are not stupid – they know how economics work for vendors, and they factor it into buying decisions.

Mr McNamara , CEO of Flextronics is a Director for the company, and has stock in the company. Flextronics is a big name customer of the company too. I really like Workday’s strategy of getting some skin in the game from customers, and industry leaders. Interestingly, SaaS pundits don’t always mention this relationship of Workday and Flextronics when they highlight “Flextronics chose Workday” .

There is not a lot of presence outside US from revenue perspective. It is not a big deal since there are plenty of customers to go after in US itself for next few years. But they do need to expand in short order to remain viable for global companies. Workday is still kind of a one trick Pony with just HR as their game since very few customers have used them for Financials. For them to be a credible threat to ORCL and SAP and so on, they have long ways to go. R&D should stay high for many years while they develop all the functionality depth and breadth.

S-1 says it takes 3 to 9 months for an implementation. Dennis Howlett characterizes it as “incredibly fast” in his excellent blog. http://www.zdnet.com/understanding-workdays-ipo-filing-7000003569/ . I am not sure  if this is a completely fair characterization since the 12 to 18 months of on-premises SW typically has multiple modules of functionality unlike what Workday offers today.  Since Dennis definitely knows cloud and Workday more than I do, I assume he had more in mind when he wrote this.

All things considered, I think Workday is a fantastic company with a bright future. Good luck to them on their IPO.

 

Added : https://plus.google.com/118281770914088081017/posts/b8fJR6w71Yq  excellent summary in bullets from Jarret P