Shares of Workday (WDAY) tumbled 5.07% in pre-market trading on Friday, despite the human resources software provider reporting better-than-expected second-quarter results. The stock's decline appears to be driven by the company's slightly disappointing outlook for third-quarter subscription revenue.

For the second quarter ended July 31, Workday posted adjusted earnings of $2.21 per share, surpassing analysts' estimates of $2.11. Revenue climbed 13% year-over-year to $2.35 billion, just ahead of the $2.34 billion forecast. The company's subscription revenue, a key metric, jumped 14% to $2.17 billion. Workday also raised its fiscal year 2026 subscription revenue forecast to $8.82 billion from the previous $8.80 billion.

However, investors seemed to focus on Workday's third-quarter guidance, which fell slightly short of expectations. The company expects subscription revenue of $2.235 billion for the current quarter, just below analysts' estimates of $2.237 billion. This conservative outlook, coupled with several analysts lowering their price targets, appears to have sparked the sell-off. Additionally, Workday announced the acquisition of Paradox, a company that uses artificial intelligence to automate recruitment and hiring processes, though terms of the deal were not disclosed. While this acquisition aligns with Workday's AI strategy, it may have raised questions about potential integration costs or dilution.