uploads///Capex to sales ratio

Can Higher Investments Create Value for Workday?

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Investment trend

Workday (WDAY), which specializes in human capital management (or HCM) and financial management through the cloud, invests heavily in product development and innovation. In order to remain competitive with other cloud service providers, the company upgrades existing products and launches new products.

In the last five years, Workday’s total capital expenditure (or capex) totaled $562.0 million, which means Workday has incurred an average capital expenditure of ~$112.0 million per year. Over the years, its capex-to-sales ratio has also shown an upward trend. From the graph above, we can see its capex-to-sales ratio growth since fiscal 2014.

Workday’s product development costs also increased rapidly in the last five years. Strong free cash flow in the last few years has encouraged Workday to drive its investments on new products.

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Guidance and upcoming goals

Workday expects its capital expenditure for fiscal 2019 to be ~$200.0 million compared with $141.5 million in fiscal 2018, driven by the opening of new data centers in the US and Europe. The company plans to launch two more data centers in Canada through a partnership with Amazon’s (AMZN) AWS service.

The company expects to step up investments in its two new products—Workday Prism Analytics and Workday Cloud Platform—which are showing higher adoption rates within the industry.

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