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Workday shares fall after analysts cite uncertainties in deals

Aneel Bhursi, co-founder and chief executive officer of Workday Inc.
David Paul Morris | Bloomberg | Getty Images
Aneel Bhursi, co-founder and chief executive officer of Workday Inc.

Shares of Workday plummeted more than 12 percent Friday, after analysts downgraded the stock due to concerns about the company's outlook.

The cloud-based HR software company Thursday posted solid third-quarter results after the bell.

In a conference call with analysts, however, the company's management warned that some large contracts expected to close in the fourth quarter may be delayed due to political and macro uncertainty. It forecast fiscal 2017 revenues of about $1.28 billion, short of Wall Street's earlier estimates of $1.56 billion in revenue.

That prompted Societe Generale to downgrade the company Friday to "sell" from "hold," saying in part it was surprised Workday warned on deal slippage so early in the fourth quarter.

"We think this generous premium could deflate rapidly if investors begin to fear a sharp slowdown in Subscription growth," Equity Analyst Richard Nguyen said in a note to clients.

Separately, Pacific Crest Securities said it saw limited upside until "large-deal visibility improves" in a note issued to clients on Thursday.

"Delays of a couple large deals tempered the company's outlook for subscription revenue and billings next quarter and will likely pressure shares tomorrow," Analyst Brent Bracelin said in the report. The firm lowered its revenue estimates for the fourth quarter to $428 million from $432 million.

UBS, however, maintained its "buy" rating of the company. It said the good news is the delays are only limited to a handful of deals.

"The 'bad" news: 1) Projects are delayed due to uncertainties around [Brexit] and elections in U.S., France, and Italy; 2) It is unclear if these uncertainties will extend in time or to other prospects in the pipeline," Analyst Brent Thill said in a note to clients.

Workday's stock is down more than 10 percent year to date.

Workday 5-Day Chart