12:14 PM EDT, 05/24/2024 (MT Newswires) -- Workday's (WDAY) Q1 result and outlook were impacted by macro pressure in Europe and the company's outlook for Q2's current remaining performance obligation, or cRPO, adds further uncertainty, BofA Securities said in a note Friday.

Analysts, including Brad Sills, said that the company expects cRPO growth in Q2 to be 15% to 16%, which is slightly below the BofA forecast of 17%. The shortfall is is expected to have only a 1% incremental impact, which suggests 17% to 18% growth is possible. Comparisons get easier in the second half of the year, BofA said.

Workday's Q1 cRPO growth reached 18%, meeting guidance, instead of its usual slight beat. Additionally, the company cut its fiscal year 2025 subscription revenue forecast, citing fewer major new deals and slower overall employee growth, the analysts said.

"Temporary macro weakness is reasonable in this environment. However, the outlook for Q2 cRPO introduces added uncertainty," the analysts added.

The Q1 results will spark discussion on whether Workday's steady growth rate is in the mid-teens or high teens, the analysts said, adding that they think the company's goal of long-term revenue growth between 17% to 19% remains unchanged. This is because of consistent growth in financials in the low to mid-20s and in human capital management, or HCM, in the mid-teens.

The analysts said that they expect HCM growth to be tracked to the high end of the 12% to 15% industry growth rate and believe that the company's balanced growth and margin will sustain low 20s free cash flow growth, which should support the current valuation.

BofA Securities adjusted its price target on Workday to $275 from $310 while keeping its buy rating.

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