ServiceNow's stock pops as it beats expectations with 27% revenue growth

ServiceNow’s stock pops as it beats expectations with 27% revenue growth

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Shares of enterprise software giant ServiceNow Inc. popped in after-hours trading Wednesday after the company delivered a first quarter earnings report that topped expectations.

The company reported earnings before certain costs such as stock compensation of $1.76 per share on revenue of $1.72 billion, up 27% from a year earlier. Net income for the period came to $75 million.

The performance was better than expected, with analysts looking for earnings of $1.70 per share on revenue of $1.7 billion. Shareholders were clearly more than satisfied, as ServiceNow’s stock rose 7% in after-hours trading, following a 2% gain earlier in the day.

ServiceNow President and Chief Executive Bill McDermott (pictured) hailed what he said was “another outstanding performance” by the company.

“We are in a sustained demand environment. Companies are investing with a sense of urgency in technologies that get them to the right outcomes, fast,” he said. “It’s very clear that businesses can no longer revert to the ‘status quo.’ We’re now in a tech-to-compete world. The ServiceNow Platform is enabling employees, customers, and citizen developers with the experiences they love.”

ServiceNow sells software that’s used by enterprises’ information technology departments to track and manage the services they provide. Its platform also provides administrative and workflow management tools, and in more recent times it has expanded from that core business to provide human resources, customer service management and IT security tools.

The company has been so successful that it’s credited with helping to popularize workflow as a concept. It is hugely ambitious too, aiming to do more than $15 billion in annual revenue by 2026.

ServiceNow’s success is evident elsewhere in its financial numbers. The company reported subscription revenue growth of 26% in the quarter, rising to $1.63 billion, ahead of estimates of $1.62 billion. Further, it reported first quarter current remaining performance obligations, or CRPO bookings, that rose 29% to $5.69 billion. CRPO are an aggregate of deferred revenue and order backlog.

During the quarter just gone, ServiceNow announced an important update to its Now Platform with the San Diego release. One of the most important new capabilities was a new robotic process automation tool called Automation Engine that helps workers to automate repetitive business tasks. The service, which is based on ServiceNow’s existing Integration Hub and RPA Hub offerings, allows workers to create RPA workflows that automatically perform tasks such as responding to frequent customer support requests.

Holger Mueller of Constellation Research Inc. said ServiceNow delivered a strong quarter but he worried that the company looks like it might be consolidating on a high growth level.

“The company showed impressive year-over-year growth but almost no quarter-over-quarter growth, which is new for ServiceNow,” the analyst said. “The good news is ServiceNow’s continued R&D investment, especially in its platform, as seen with the San Diego release. Platform investments take time to take off though, so we will see where this takes ServiceNow in the coming quarters.”

Looking ahead to the second quarter, ServiceNow forecast subscription revenue of between $1.67 billion to $1.675 billion, the midpoint of which is just below Wall Street’s guidance of $1.675 billion.

Photo: World Economic Forum/Flickr

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