Cloud-based HR provider Workday sets IPO record

Wall Street investors are betting Workday is no Facebook

After the nosedive taken by Facebook's (NASDAQ: FB) stock after its much hyped initial public offering (IPO), investors on Friday jumped on the Workday (NYSE: WDAY) bandwagon, pushing the stock price up 74 percent after its debut at $28 per share. The stock closed at $48.69 per share, putting the company's market value at $7.8 billion.

The company raised $637 million, the largest IPO for a cloud computing firm and the largest market debut by a tech company since Facebook's IPO earlier this year, according to a story in the San Jose Mercury News. The company plans to use the money for additional hiring and global expansion.

Workday, a developer of cloud-based human resources and financial management products, has yet to post a profit and does not expect to do so for the foreseeable future. However, the startup does have some 340 customers for its cloud-based platform, including heavy hitters HP (NYSE: HPQ), AIG (NYSE: AIG), Kimberly-Clark (NYSE: KMB), Flextronics (NASDAQ: FLEX) and Four Seasons Hotel, according to the Wall Street Journal.

Workday, co-founded by Dave Duffield and Aneel Bhusri, both former PeopleSoft execs, provides companies with an alternative to on-premise data centers through a cloud-based platform. Workday's main competitors are IBM (NYSE: IBM), Oracle (NASDAQ: ORCL) and SAP (NYSE: SAP).

While cloud computing is all the rage on Wall Street, companies have been less enthusiastic about adopting cloud computing for mission-critical or sensitive systems, such as HR and financial management.

According a recent survey by the 451 Group's Uptime Institute, only 25 percent of the 2,000 IT professionals polled have deployed public cloud for their mission-critical data centers. Cost reduction is the primary driver for cloud computing use, but security concerns still weigh heavily on IT managers' minds.

As a result of the stock's performance on Friday, the company is valued at 26 times its annual revenues. Robert Broens, contributor to Seeking Alpha, said that valuation was "absurd."

"While Workday is able to report significant revenue growth and operates in a long-term growth market, the valuation has become too excessive. Shareholders should be warned by Workday's own comments that the company is expected to lose money for a considerable period of time," he wrote in a blog.

Apparently, investors are betting that Duffield and Bhusri have the expertise to make the company a success. Workday got "a well-deserved premium valuation as the market bets that lightning can strike twice for Dave Duffield," Sam Hamadeh of independent data analysis firm PrivCo told the San Jose Mercury News.

While investors might come to regret that bet, the company's revenues and customer numbers have been growing. In the long run, Workday's success will depend on its ability to effectively serve the needs of the enterprise market.

For more:
- read the San Jose Mercury News article
- check out the Wall Street Journal article
- see Uptime Institute's release

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