Have you ever watched a company absolutely smash its quarterly numbers, only to see the stock tank anyway? That was the story with Workday after the bell on November 25, 2025. The finance and HR software giant dropped a solid report, then watched shares slide more than 5% in extended trading. One line in the guidance – the operating margin outlook – was all it took to wipe out the celebration.
I’ve been following enterprise software for years, and moments like these always fascinate me. The market has become brutally picky, especially with anything that even smells like slower profitability growth. Let’s unpack exactly what happened and whether this dip is noise or something bigger.
What Actually Happened in Q3
Workday delivered numbers that, on paper, looked pretty great. Revenue clocked in at $2.43 billion, edging out the $2.42 billion consensus. Adjusted earnings per share came in at $2.32 – well above the $2.18 analysts expected. That’s the kind of beat that used to send shares flying 10% the next day. Not anymore.
Subscription revenue, the lifeblood of any SaaS company, hit $2.24 billion for the quarter, growing about 13% year-over-year. Net income jumped to $252 million from $193 million a year ago. Operationally, the adjusted operating margin landed at exactly 28.5% – actually better than the 28.1% the street was modeling.
So why the sour mood? Guidance.
The One Number That Spooked Everyone
For the upcoming fourth quarter, management guided to subscription revenue of $2.355 billion and an adjusted operating margin of at least 28.5%. The street had been hoping for a slight expansion to around 28.7% on the margin side. That tiny 20 basis-point miss is what triggered the sell-off.
It feels almost ridiculous when you say it out loud – a company beating top and bottom line, expanding margins year-over-year, and the stock drops because the next quarter might keep margins flat instead of growing them a hair more. Welcome to the 2025 software market.
In this environment, investors aren’t rewarding growth nearly as much as they’re punishing any hint of margin stagnation.
Why Margins Matter More Than Ever
Think about the broader context. Interest rates may have come down, but capital isn’t free anymore. Private equity buyers, corporate boards, and public market investors all want to see profitable growth, not just growth. When a mature SaaS name like Workday guides flat margins, the immediate fear is that heavy AI investments are eating into profitability.
And Workday is spending heavily on AI right now – more on that in a minute.
In my experience, these knee-jerk reactions often create interesting entry points. The question is whether the long-term story remains intact.
The AI Elephant in the Room
Let’s be honest – the real cloud hanging over Workday (and many enterprise software names) in 2025 has been generative AI. For a while, the narrative was brutal: “Why pay Workday millions when ChatGPT can do half the job for pennies?”
Management has pushed back hard on that idea. During the quarter, they rolled out new AI agents for employee performance analysis and financial health monitoring. They also announced the $1.1 billion acquisition of Sana, an AI-powered learning platform. These aren’t small moves.
- New AI agents already in customer hands
- Sana acquisition brings cutting-edge learning models in-house
- Partnerships expanding the AI ecosystem
- Thousands of customers testing or live with AI features
The bet is simple: Workday doesn’t get disrupted by AI – it becomes the platform that delivers AI safely and compliantly to the largest companies in the world. That’s a powerful moat if they pull it off.
Enter Elliott Management
Another wildcard: activist investor Elliott Management disclosed a stake worth over $2 billion during the quarter. That’s not pocket change. Elliott has a track record of pushing for operational efficiency, share buybacks, or even strategic reviews.
Some investors actually see this as a positive – a sophisticated voice in the boardroom making sure management stays disciplined on margins while still investing in growth. Others worry it adds short-term pressure exactly when the company is trying to plant seeds for an AI-driven future.
Putting the Stock Move in Perspective
Step back and look at the price action. Workday shares are down about 9% year-to-date while the Nasdaq is up nearly 20%. That’s a massive underperformance gap. Part of it reflects the AI fear trade. Part of it reflects tougher comps and a more conservative buyer in enterprise IT.
But valuation has compressed dramatically because of that lag. Depending on where the stock closes after this reaction, we could be looking at a forward multiple that’s starting to look reasonable again for a company with Workday’s quality.
What I’m Watching Next
Several key signals over the coming months:
- Early feedback on the new AI agents – are customers paying up for them?
- Integration progress with Sana post-close
- Any commentary from Elliott on their thesis
- Whether Q4 margins surprise to the upside despite the conservative guide
- Renewal rates and net retention figures in the next report
If the AI products start showing meaningful revenue contribution and margins stabilize or expand, this could look like a classic overreaction in hindsight.
On the flip side, if we see continued margin pressure into fiscal 2027, the bears might have a point that the AI spend is getting ahead of the revenue opportunity.
For now, I’m in the camp that sees this as healthy skepticism rather than a broken story. Enterprise software transitions take time, and Workday has a long runway with the largest companies on the planet.
The market wanted perfection. Workday delivered very good – and got punished for it. That’s usually when the most interesting conversations start.
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