Workday’s stock slipped more than 5% in after-hours trading on Tuesday after the enterprise software provider released quarterly guidance that failed to meet analysts’ margin forecasts. Although the company delivered results that largely aligned with market expectations, investors reacted cautiously to its outlook for the coming quarter.

According to LSEG consensus estimates, Workday performed slightly better than anticipated on key financial metrics. The company reported adjusted earnings per share of $2.32, exceeding the expected $2.18. Revenue reached $2.43 billion, narrowly topping projections of $2.42 billion.

For the fiscal fourth quarter, Workday projected an adjusted operating margin of at least 28.5% and subscription revenue of about $2.355 billion. Analysts surveyed by StreetAccount had anticipated a marginally higher 28.7% margin but slightly lower subscription revenue of $2.35 billion. The guidance, while relatively close to expectations, still heightened investor concerns about profitability.

In the fiscal third quarter, which ended October 31, Workday’s overall revenue increased roughly 13% from the previous year. Net income climbed to $252 million, or 94 cents per share, compared with $193 million, or 72 cents per share, during the same period last year.

Subscription services—Workday’s primary revenue driver—brought in $2.24 billion for the quarter. The company reported an adjusted operating margin of 28.5%, in line with expectations. Analysts had forecast the same subscription revenue figure and a slightly lower margin of 28.1%.

Workday also highlighted several strategic developments during the quarter, underscoring its push into artificial intelligence and long-term product expansion. The company introduced a suite of AI-powered agents designed to help organizations assess employee performance and monitor financial conditions. In addition, Workday announced a plan to acquire Sana, an AI and learning software startup, for $1.1 billion. The acquisition is intended to strengthen Workday’s capabilities in intelligent workplace technology. Meanwhile, activist investor Elliott Management disclosed that it has accumulated a stake in Workday valued at more than $2 billion, signaling heightened interest from the investment community.

However, not all segments of Workday’s customer base experienced smooth progress. CEO Carl Eschenbach noted on an analyst call that the company faced some challenges among higher education clients that depend heavily on U.S. federal funding. These institutions, he said, have shown increased caution amid shifts in government financial programs.

Workday’s share price struggles reflect broader market conversations about the future of cloud software providers in the age of generative AI. Some analysts have raised concerns that emerging AI tools could disrupt traditional enterprise software models and intensify competition. So far in 2025, Workday’s stock has dropped about 9%, even as the Nasdaq Composite has risen 19%.

Eschenbach, however, expressed confidence that the company’s deep integration within enterprise systems and long-standing customer trust will remain strong competitive advantages. He noted that recent industry discussions are shifting back toward established providers that already deliver substantial value across large organizations.

Despite widespread layoffs across the tech and corporate landscape this year, Eschenbach added that overall employee counts within Workday’s customer organizations have grown compared with last year—a sign, he suggested, that underlying demand for the company’s HR and finance solutions remains healthy.