Workday, Inc. (WDAY) and Bill.com Holdings, Inc. (BILL) are two prominent companies that offer enterprise cloud solutions worldwide. WDAY develops enterprise cloud applications that help customers manage critical business functions and optimize their financial and human resources for the finance, healthcare, manufacturing, education, and technology industries. In comparison, BILL provides cloud-based software that simplifies, digitizes, and automates back-office financial operations for small and midsize businesses. The company offers bill workflow, payment processing, business document filing services, electronic invoicing, and mobile application management tools.
Apart from the ongoing digitalization across industries, the readoption of remote working amid the resurgence of COVID-19 cases is driving the demand for cloud computing solutions. Moreover, many businesses are increasingly spending on cloud migration to make their operations efficient and stable. The global cloud computing market is expected to grow at a 16.3% CAGR to reach $947.30 billion by 2026. So, both WDAY and BILL should benefit.
WDAY is a winner with 9.6% gains versus BILL’s negative returns in terms of the past six month’s performance. But which of these stocks is a better pick now? Let us find out.
Latest Developments
On November 18, 2021, WDAY entered into a definitive agreement to acquire VNDLY, an industry leader in cloud-based external workforce and vendor management technology, for $510 million in cash. This will enable WDAY to provide organizations with a unified workforce optimization solution and support evolving workforce dynamics.
On November 9, 2021, at the Sage Transform event, BILL announced rolling out a series of new product features that expand its ability to be the all-in-one financial operations platform for small and midsize businesses and accountants. Offering features to organizations that easily control back-office, provide real-time insight, and better cash flow management, WDAY is looking forward to providing businesses with increased visibility, control, and new payment options.
Recent Financial Results
WDAY’s total revenues for its fiscal 2021 third quarter ended October 31, 2021, increased 20% year-over-year to $1.33 billion. The company’s operating income came in at $332.25 million, up 23.9% from the year-ago period. Its net income came in at $286.58 million for the quarter, indicating a 30.4% year-over-year improvement. Its non-GAAP EPS increased 27.9% year-over-year to $1.10. The company had $1.30 billion in cash as of October 31, 2021.
For its fiscal 2022 first quarter ended September 30, 2021, BILL’s revenue increased 151.9% year-over-year to $116.40 million. The company’s non-GAAP gross profit came in at $96.98 million, up 175.3% from the prior-year period. Its non-GAAP loss from operations came in at $11.14 million, indicating a 394.9% rise from the prior-year period. While its non-GAAP net loss increased 889.1% year-over-year to $14.07 million, its non-GAAP loss per share grew 650% to $0.15. The company had $2.01 billion in cash and cash equivalents as of September 30, 2021.
Past and Expected Financial Performance
WDAY’s revenue and total assets grew at a CAGR of 23.2% and 23.6%, respectively, over the past three years.
WDAY’s EPS is expected to grow 33.4% year-over-year in the fiscal year 2022, ending January 31, 2022, but decline 9% in fiscal 2023. The company’s revenue is expected to increase 18.7% year-over-year in fiscal 2022 and 19.3% in fiscal 2023. WDAY’s EPS is expected to grow at a 15.8% rate per annum over the next five years.
In comparison, BILL’s revenue and total assets increased at CAGRs of 54.3% and 79.7%, respectively, over the past three years.
Analysts expect BILL’s EPS to remain negative in fiscal 2022 and 2023. Its revenue is expected to grow 127.3% year-over-year in fiscal 2022 and 36.9% in fiscal 2023. The company’s EPS is expected to decline at a rate of 28.7% per annum over the next five years.
Valuation
In terms of non-GAAP P/E for the next fiscal year, WDAY is currently trading at 71.49x, compared to BILL’s negative 261.22x. In terms of forward EV/Sales, WDAY’s 12.12x compares with BILL’s 32.58x.
Profitability
WDAY’s trailing-12-month revenue is almost 15.9 times BILL’s. However, WDAY is more profitable, with an 8.2% EBITDA margin versus BILL’s negative value.
Furthermore, WDAY’s ROA, ROE, and ROTC of 0.9%, 0.5%, and 0.7%, respectively, compare favorably with BILL’s negative values.
POWR Ratings
While WDAY has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, BILL has an overall F grade, equating to a Strong Sell. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
WDAY has a C grade for Value, which is in sync with its slightly higher-than-industry valuations. WDAY has a 2.5x non-GAAP forward PEG, 55.8% higher than the 1.61x industry average. BILL’s F grade for Value reflects its overvaluation. BILL’s 32.58x forward EV/Sales is 703.3% higher than the industry average of 4.06x.
WDAY has a B grade for Quality, consistent with its higher-than-industry profitability ratios. WDAY’s 35.3% trailing-12-month levered free cash flow margin is 200.2% higher than the 11.8% industry average. BILL’s D grade for Quality is in sync with its negative trailing-12-month levered free cash flow margin.
Of the 166 stocks in the Software - Application industry, WDAY is ranked #24, while BILL is ranked #158.
Beyond what we have stated above, our POWR Ratings system has also rated WDAY and BILL for Growth, Sentiment, Stability, and Momentum. Get all WDAY ratings here. Also, click here to see the additional POWR Ratings for BILL.
The Winner
The growing demand for cloud-based solutions should benefit both WDAY and BILL in the upcoming months. However, relatively lower valuation and higher profitability make WDAY a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Software - Application industry.
WDAY shares were trading at $249.20 per share on Tuesday afternoon, down $5.11 (-2.01%). Year-to-date, WDAY has declined -8.78%, versus a -3.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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