PLEASANTON — Shares of Workday jumped as much as 83 percent on Friday in a red-hot trading debut for the cloud software company following its initial public offering, a successful launch for the biggest high-tech IPO since Facebook.
“It’s a great validation of all the hard work that our employees have put in over the last seven years,” Aneel Bhusri, Workday’s co-founder and co-CEO, said in a telephone interview Friday with this newspaper. “Everybody is excited about this.”
Pleasanton-based Workday closed up $20.69, or 73.9 percent, at $48.69 after trading in a range between $45.05 and $51.37 — 60.9 percent to 83.5 percent higher than the IPO price of $28.
The $28 IPO pricing for Workday, something of a successor to software giant PeopleSoft, was well above the price that Workday had indicated for the IPO just days earlier. The IPO pumped at least $637 million into the company’s coffers.
“The additional money from the IPO will help us grow and expand,” Chief Financial Officer Mark Peek said in a phone interview with this paper. “We have been hiring on a fairly aggressive clip and we expect that to continue. We expect to hire about 400 to 500 people by the end of 2013.”
The company has more than 1,500 employees now. Many of the new hires are expected to work in Pleasanton and San Francisco, along with a large Workday center in Ireland.
The stock debuted on the New York Stock Exchange at $48.05 Friday morning, slightly after 7 a.m. Pacific time, under the ticker symbol WDAY. Daniel Sweet, a partner at IPO Boutique, called the market debut a “spectacular pop.” He said in a telephone interview Friday that the shares were oversubscribed — demand exceeded supply — by up to 8 or 10 times, as “an extreme amount of momentum” took over the IPO.
Despite the red-hot launch of the stock, company executives say the firm has much to do.
“This is just a step along the way,” Bhusri said. “This is just the start of the shift from the enterprise world to the cloud world. There is a lot more work to do. A lot more to accomplish.”
The amount that Workday raised makes the company’s offering the largest IPO by a cloud computing firm — and the largest market debut by a tech company of any kind since Menlo Park social network Facebook’s IPO, analysts said.
“In all, a winning day for Workday, its investors and employees,” Sam Hamadeh of independent data analysis firm PrivCo said.
Facebook debuted in May, but the first day of trading was bungled, and the public learned soon after that large institutional investors had received information on slashed revenue projections that was not made public.
Facebook stock plunged and has yet to recover — it was trading roughly 48 percent lower than its IPO price Friday — and the IPO market froze for more than a month.
With Workday’s IPO coming on the heels of four market debuts Thursday, all of which increased more than 20 percent in their first day of trading, and a third quarter that saw tech companies like Trulia and Qualys debut positively, it seems the IPO market has healed. According to PrivCo data, this week has been the best for total IPOs priced since March, and the total amount raised was surpassed only by Facebook’s gigantic haul in that time.
“Workday’s very strong performance — and coming on the heels of strong performance from other recent IPOs (including B2B plays such as Palo Alto Networks and Splunk — and select consumer plays such as Trulia) have combined to now forcefully reopen the IPO window,” PrivCo’s Hamadeh said Friday.
However, the expert on private companies said that any startups considering going public “should pursue and price them without further delay, as we know from recent history that the IPO window can shut down just as fast as it opened.”
Former PeopleSoft leaders David Duffield and Bhusri founded Workday in 2005. They left PeopleSoft after Oracle (ORCL) bought the Duffield-founded company in a hostile takeover that was bitter and marked by numerous twists and turns. Like PeopleSoft, Workday sells software for human resources.
Workday, though, chose a different delivery platform. The company rents cloud-based software, rather than making customers buy expensive licenses and endure lengthy and complex installations. Cloud software — also known as software as a service, or SaaS — has become the hottest enterprise offering, with companies relying on the delivery method rewarded handsomely.
Despite slight differences, Duffield’s experience in building a successful software company helped its IPO, according to Hamadeh, who said Friday that Workday had received a “Duffield Premium.”
Workday “is clearly receiving a well deserved premium valuation as the market bets that lightning can strike twice for Dave Duffield,” Hamadeh said in an email.
Cloud software companies have been popular targets for acquisitions by larger software companies, with Oracle, SAP and IBM spending billions recently on Bay Area companies like SuccessFactors, Taleo and Ariba. Silicon Valley companies have also found eager buyers for freshly minted stock in the sector this year, including Palo Alto Networks, Infoblox and Proofpoint.
Workday should be able to do battle with the large software companies such as Oracle, SAP and Salesforce because of its focused cloud-based business model, analyst Sweet said Friday.
“The structure of this particular company would make them one of the worst nightmares for their competitors” such as Oracle, Sweet said.
“(Workday) can frequently upgrade their software multiple times a year, keeping them ultracompetitive to these very bulky and very expensive systems” offered by larger competitors, which Sweet called “behemoths that have very structured, antiquated and slow-moving implementation processes.”
Belief in the company showed up on the road to Workday’s IPO — It filed in August for an IPO of as much as $400 million; pushed that higher on Oct. 1, with plans to offer shares at $21 to $24 apiece; increased that range to $24 to $26 Tuesday; then priced the shares at $28 Thursday.
Workday’s increasing revenues are the key to investor enthusiasm in the stock, despite the company’s inability to turn a profit. Overall revenues increased from $25.2 million to $68.1 million to $134.4 million in the past three full fiscal years. In the first six months of the 2012 fiscal year, that growth continued with revenues of $119.5 million, though losses totaled $47.3 million.
The revenue growth and possibility for more is strong enough to ignore the losses for now, Sweet explained.
“The losses have been significant thus far, but I think the way they’ve been able to grow their revenues and the way that they’ll be able to grow their revenues in the future … can only allow them to grow their revenues and customer base at an exponential rate,” the analyst said.
Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.
