Despite mixed results, ServiceNow's stock makes strong after-hours gains

Despite mixed results, ServiceNow’s stock makes strong after-hours gains

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ServiceNow Inc.’s stock made big gains in after-hours trading today despite the company posting mixed financial results for its third quarter. It beat expectations on earnings but missed on revenue and offered lower guidance, yet its stock jumped more than 12% in the hours after the report.

In a statement, ServiceNow reported earnings before certain costs such as stock compensation of $1.96 per share, up from $1.55 a year earlier. Revenue jumped 21% to $1.83 billion. On its bottom line, ServiceNow reported a net profit of $80 million. Wall Street had been looking for earnings of just $1.85 per share on higher revenue of $1.85 billion.

The company also reported subscription revenue of $1.74 billion during the quarter, up 22% from a year before.

For the fourth quarter, ServiceNow said it’s expecting subscription revenue to come in at around $1.83 billion to $1.84 billion. That was below Wall Street’s forecast of $1.87 billion in subscription revenue. The company also lowered its full year subscription revenue guidance to $6.87 billion, down from an earlier target of $6.92 billion.

ServiceNow Chairman and Chief Executive Bill McDermott (pictured) praised the company’s performance, saying it had once again beaten both its top and bottom-line goals. “Businesses are leading into the generational shift from architectures built in the last century to platforms engineered for this one,” the CEO said. “Through dramatically improved experiences for customers, employees, and creators, ServiceNow is becoming the strategic center of gravity for digital transformation. Our focus on value creation is unmatched.”

ServiceNow is a leading player in the workflow automation software space. Its platform is used by enterprise information technology teams to track and manage the services they provide. It also offers administrative and workflow management tools, and in recent times has expanded into adjacent areas such as human resources, customer service management and IT security.

The company has been very successful in the past few years, helping popularize the concept of workflow. It has set itself the ambitious target of generating more than $16 billion in annual revenue by 2026.

It remains to be seen if ServiceNow will reach that goal but it can take confidence from some positive growth numbers. In its report, it revealed that its current remaining performance obligations, which is contract revenue that will be recognized over the next 12 months, came to $5.87 billion, up 18% from a year ago. In addition, the company said it now has more than 1,530 customers that generate at least $1 million in annual revenue, up 22%. Meanwhile its number of customers paying over $10 million a year rose by an impressive 60%.

ServiceNow had a busy quarter on the product front, announcing a major refresh of its flagship workflow automation platform with the Now Platform Tokyo release. It also boosted its observability platform Lightstep with the addition of a Unified Query Language to enable observability-as-code. Lightstep will likely get some additional new capabilities soon, following ServiceNow’s acquisition of a startup called Era Software Inc.

ServiceNow Chief Financial Officer Gina Mastantuono said the company’s strong performance in the quarter is a testament to its team’s strong execution. “We continue to see a robust pipeline and are maintaining our investments in growth hires as the opportunity in front of us remains enormous,” she said. “Our business is resilient, our teams are delivering, and we are as confident as ever about becoming the defining enterprise software company of the 21st century.”

Photo: SAP

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