Key Points
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Reuters reported last Thursday that Silver Lake has held talks to take Workday private, and the shares jumped nearly 18%.
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Workday’s revenue is up 13.3% over the past year, with net income up about 74%.
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The talks are reported as ongoing, with no price or terms disclosed and no assurance of a deal.
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Workday (NASDAQ: WDAY) had its best day since 2016 last Thursday. Shares jumped nearly 18% (trading was halted multiple times along the way) after Reuters reported that private equity firm Silver Lake has spent recent months in talks to take the human resources and finance software maker private. The move lifted Workday’s market value from about $43 billion to nearly $51 billion.
What nobody has reported is a price, or terms, or any assurance a deal gets done. Neither Workday nor Silver Lake immediately responded to CNBC’s request for comment. And reported talks don’t always turn into offers.
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So the exercise worth doing is valuing the business on its own — as if no buyer ever shows up.
Image source: Getty Images.
What Thursday changed
Before the report, Workday was a stock the market had spent much of the year marking down. Concerns that artificial intelligence (AI) will upend the business model of seat-based software have weighed on the shares for months. The company also changed leaders in February, when co-founder Aneel Bhusri returned as CEO, replacing Carl Eschenbach. And even after Thursday’s jump, the stock remains about 17% below its 52-week high of $249.85.
That context matters for handicapping the talks. A private equity firm circling a company like this is a bet that the market’s AI fears are overdone, and that the cash flows are durable enough to carry a leveraged deal. Even if no offer ever comes, the report says a deep-pocketed buyer has been in talks about a deal for months.
The stand-alone business
The business under all this is slower than it was, and considerably more profitable. Workday’s revenue over the trailing 12 months came to $9.85 billion, up 13.3%. Fiscal 2026 (the year ended Jan. 31, 2026) showed the same shape, with revenue up 13.1%, a step down from 16.4% growth the year before and from the high-teens rates of a few years ago.
Profitability is moving the other way. Operating margin has climbed from 2.5% in fiscal 2024 to 4.9% in fiscal 2025 to 7.5% in fiscal 2026, and trailing-12-month net income rose about 74% to $847 million.
Free cash flow is the more useful measure for a software company, though. Workday generated about $2.97 billion of it over the trailing 12 months, about 30% of revenue.
The AI question hangs over the growth line specifically. Workday prices mostly on its customers’ headcount, and if AI lets them run leaner back offices, that headcount could stagnate even while the software stays essential. That risk helped push the stock lower through the first half of the year, before a sharp rebound took hold in July.
The numbers haven’t settled it either way. Fiscal 2026’s 13% growth is slower than the past, but it isn’t the shrinkage the skeptics expect.
A five-year forecast
A forecast is only as honest as its assumptions, so here are mine. Assume revenue growth eases from 13% toward single digits, averaging about 10% a year. That puts revenue near $16 billion in five years. Assume free cash flow margin holds around 30%, which requires no improvement from today. That produces about $4.8 billion of annual free cash flow.
The last assumption is the multiple. Put a mature-software valuation of 18 to 20 times free cash flow on those dollars, and the business would be worth about $85 billion to $95 billion, or about $340 to $385 per share before accounting for changes in the share count. The stock trades at about $206 as of this writing.
From the current $51 billion value, that works out to annualized returns of about 11% to 13%.
Of course, the bear branch is the one the AI skeptics would draw. If headcount pressure caps growth at about 6% a year and the multiple compresses to 15 times free cash flow, the value lands near $60 billion, or about $240 per share — closer to a 3% annualized return from here. Slower, but not a disaster, with free cash flow still growing the whole way.
I’d put more weight on the first branch than the second. Workday’s margin climb is recent and steep, and a business converting 30% of revenue to cash can fund its own transition into whatever AI makes of enterprise software. If the talks end without a deal, part of Thursday’s jump would likely reverse, and quickly. But the five-year case was never about the talks. It rests on growth near 10% and a free cash flow margin that holds where it is, and today, both assumptions still look reasonable to me.
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Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Workday. The Motley Fool has a disclosure policy.