Investing.com -- Shares of Workiva (NYSE:WK) fell 10% Wednesday as investors reacted to news that the German and French governments may seek amendments to the European Union’s Corporate Sustainability Reporting Directive (CSRD). The directive, which is anticipated to be a significant growth driver for Workiva, is currently facing potential changes that could impact the company's expansion in Europe.
The CSRD is a set of regulations requiring companies to disclose around 1,000 new non-financial data points, such as climate impact and supply chain details. This directive would apply to approximately 50,000 companies within the EU, including an estimated 3,000 US-based firms. The reporting, which must be auditable and utilize XBRL in ESEF format, is considered a key opportunity for Workiva, whose platform caters to such compliance needs.
However, the prospect of modifications to the directive, particularly those that might limit compliance requirements for mid-sized companies, has raised concerns about potential delays in adoption. This could, in turn, influence purchasing decisions and slow down Workiva's anticipated growth in the European market.
BMO Capital analyst Daniel Jester commented on the situation, stating, "Potential changes to limit mid-sized company compliance likely would only have a modest impact to Workiva given their focus, although possible delays could be a headwind to buyer behavior in CY25." Despite the current uncertainties, Jester maintained an Outperform rating and a $120 price target on Workiva.
Investors appear to be weighing the risks of regulatory changes against Workiva's prospects in the European market. While the company has positioned itself to capitalize on the emerging demand for sustainability reporting, the evolving legislative landscape in the EU presents a variable that could affect the timeline and scale of its market penetration.
As the situation develops, market participants will likely monitor any further announcements from the EU regarding the CSRD and how these might influence Workiva's strategy and performance in the region.
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