Workday announces 'surprising' management changes

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By Sam Boughedda 

Workday (NASDAQ:WDAY) announced after the close on Tuesday that it has appointed Carl Eschenbach as co-CEO, effective immediately.

The company said in a statement that Eschenbach would remain on the Workday Board of Directors, which he has been a member of since 2018, and will serve as co-CEO alongside Aneel Bhusri, Workday's co-CEO, co-founder, and chair, through January 2024, Workday's fiscal year-end.

In addition, Chano Fernandez has stepped down as co-CEO and as a member of the company's board, effective immediately.

Following the announcement, Citi analysts said: "As part of the announcement, WDAY re-affirmed its F4Q guide and preliminary FY24 outlook of 17-19% Sub rev growth and +150-200bps OM expansion, suggesting the change wasn't performance related. WDAY is down slightly after hours likely due to concerns over sales disruption, yet we view new co-CEO Eschenbach as a solid industry veteran/operator that has had success running enterprise sales organizations at Workday's scale and is viewed by the company as the right standalone leader. We remain Neutral rated until we have increased confidence in the demand outlook."

Elsewhere, Guggenheim analysts wrote in a note to clients that the timing of the move is "suspect, given that it is midway through the company’s fiscal fourth quarter."

However, they added that guidance was reiterated in the press release and the firm's conversation with the company "indicated that they believe they are doing this from a position of strength."

Mizuho analysts said the firm "view Carl Eschenbach as a strong addition to the management team given his 30+ years of technology industry experience, both as a strong operator (President & COO of VMWare) and a VC as well as a board member of multiple major software companies."

"The company also reiterated its FQ4 and FY24 prelim guidance. We reiterate our Buy rating and $200 PT. WDAY remains one of our top picks for 2023," added the analysts.

Finally, Stifel told investors in a research note that there is "no question this is a surprise given the company's steady performance over the last several quarters, but given the action of the Board it is clear they lost confidence in Mr. Fernandez's ability to assume the sole CEO slot in coming years."