This is a battle as old as Workday (NASDAQ: WDAY) itself. Workday is a human capital management (HCM) firm that was founded in 2005 by two executives of Peoplesoft who were ousted when it became subject to a hostile takeover by none other than Oracle (NYSE: ORCL). Today, Oracle is a database software giant and Workday is a leader in HCM software.
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Both companies provide cloud-based software that offers HCM solutions for HR, recruiting, career development, payroll processes, and other more. But which one is a better business to invest in right now?
Bull and bear case for Workday
A survey recently found that around 70% of IT executives are currently looking to move their software systems onto the cloud sooner than anticipated due to COVID-19. For Workday, this means that there is a potential pool of companies to dip into that have plans to increase digitalization. Workday would be a top choice for many of these as it already boasts well-known companies such as Tripadvisor, Visa, and Mastercard amongst its client list.
In its latest earnings report, Workday exceeded estimates following a 20% increase in revenue to $1.06 billion, with adjusted earnings coming in at $0.84 a share, up 91% year-over-year (YoY). In addition, Workday’s fast-growing Financials sector now puts it within the same competition realm as SAP and Oracle.
Conversely, wary investors may have noticed a 10% slump throughout September. Luckily this can be easily explained as part of a broader market sell-off which disproportionately saw growth-dependent stocks pull back. Although this can suggest susceptibility to some volatility, overall, the stock is still up 38% this year.
Unfortunately, economic uncertainty is making it difficult for Workday to attract new clients, or indeed, retain those it already has. Despite recent growth in its financial sector, HR still represents 80% of overall revenue. Difficulty attracting new clients could prove detrimental to the company’s continued growth in 2021.
Bull and bear case for Oracle
If you haven’t been living under a rock lately you will know that Oracle was the unlikely winner of the bidding war for TikTok, or rather, hand holding of TikTok… yeah, we are a bit confused too. Either way, the company now has a 12.5% stake in the new TikTok Global spin-off company; a bold and confident move for a tech company that generally tends to stay under the radar and doesn’t often foray into the consumer-facing market.
Oracle has spent the last decade adapting to a cloud-based subscription software model, making several acquisitions along the way. It spent $443 million on restructuring in 2019 alone and another $6 billion on development each year for the past three years. A company that adapts is one that will be around for a while and in its most recent quarterly report, it topped estimates with adjusted earnings at $0.93 per share on revenue of $9.4 billion.
However, investors should be aware that, in terms of growth, Oracle is not hitting any high notes. After a 6% drop in revenue YoY for the quarter ending June 31, its most recent earnings report from September saw a 2% increase in total revenue YoY. Nothing to write home about, but during a period of economic uncertainty, this can be forgiven.
Looking towards the future, it seems pretty clear that Oracle is moving into competition with heavyweights such as Amazon and Microsoft. This may not be the best position to be in right now as its infrastructure-as-a-service (IaaS) is currently weaker than that of its competitors. As such, it is also trying to incorporate more and more services within its lower-cost platform, meaning less focus is given to enhancing its flagship products.
So, which stock is the one to watch?
Overall, Oracle might seem like a better company as it has more experience in the HCM arena. However, this stock is not a high growth one which could make it more suitable for anyone who is risk-averse but is happy with some slower continuous growth in the long-term.
Workday could be a stock for investors who want high, fast growth, and don’t mind a little risk. It might have to fight for more market share, but over the next few years, the cloud computing segment should have more than enough space to accommodate it.
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