Workday seeks IPO as Oracle rivalry grows
SAN FRANCISCO (MarketWatch) -- Larry Ellison dismissed the company as "too small and frail" over the summer, but Workday has evidently emerged as such a formidable player the software behemoth's chief executive has taken notice.
Workday filed papers late Thursday for an initial public offering worth $400 million at a time when the Pleasanton, Calif.-based firm is staking a claim in the market for cloud-based software applications used by businesses to manage their employee data and processes.
It would be the latest debut in a fast-growing segment known as software-as-a-service, or SaaS, that is challenging traditional enterprise software vendors for a slice of the lucrative corporate IT market.
In this market, corporate customers pay a subscription fee based on the number of users, rather than assuming the hefty costs of installing and maintaining the software on their own systems.
"There's incredible pent-up demand for the approach Workday is taking," Wedbush analyst Steve Koenig told MarketWatch. "I've talked to customers who are very frustrated with the amount of money they pay for maintaining their
PeopleSoft refers to the human resources applications suite that Oracle (ORCL) acquired when it bought the company back in 2004 after a bitter hostile takeover battle. PeopleSoft was founded and led by David Duffield, who co-founded Workday with another PeopleSoft alum Aneel Bhusri, with whom he shares the CEO title at Workday.
Other startups have also taken aim at software-as-a-service human capital management market. But Koenig said, "Workday is unique in that it's the first enterprise-class offering that covers core HR [human resources] and payroll."
That's what's worrisome for Oracle, analysts say, although Ellison has also been publicly dismissive of the startup's challenge.
"I'm not worried about Workday," Ellison said at the D10 conference in southern California in May, where he described the company as "too small and frail."
In fact, Workday remains unprofitable, according to the company's IPO filing. But revenues have been growing at a fast clip. Workday's sales more than doubled to $119.5 million in the first six months of 2012 compared to the same period last year, while its net loss grew to $46.9 million from $36.3 million in that same period.
"Workday is not profitable, but the top-line sales are exponentially growing," said Scott Sweet of IPO Boutique.
Furthermore, he added, Workday is one of the "small companies with tremendous top-line growth, but don't have the false euphoria that
He was referring to Facebook's (FB) controversial IPO in May, at which the social network debuted at $38 only to see its stock fall to less than half that level now, which has helped sour sentiment on the social networking segment.
On the other hand, Workday highlights the popularity of companies in the software-as-a-service market, some of which have recently had highly-successfully IPOs. On Thursday, shares of
Another cloud-based company,
Splunk and Guidewire are two of the top five best-performing IPOs year-to-date, said Paul Bard of Renaissance Capital, the investment advisory firm based in Greenwich, Connect.
Bard also called Workday "a highly-anticipated IPO," adding that the company "has been increasingly disruptive in winning business away" from such players as Oracle and SAP (SAP) .
"These new web-based software companies are taking share because their products are easier to use and less expensive to deploy and maintain," he said. "Given Workday's traction to date, impressive growth and large market opportunity, we expect investor interest in this IPO to be very high."
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