ServiceNow Stock Rises After Earnings Top Estimates

By Eric J. Savitz

Jan. 27, 2021 8:49 pm ET

Dreamstime

ServiceNow shares gained ground in after- hours trading on Wednesday on better-than-expected financial results  — and strong guidance for the cloud-based workflow management software company. The solid growth could be seen as a good omen for other enterprise focused cloud software providers.

For the quarter, ServiceNow (ticker: NOW) posted revenue of $1.25 billion, up 31% from a year ago and ahead of the Wall Street analyst consensus at $1.21 billion, with non-GAAP profits of $1.27 a share, ahead of the Street at $1.05.

In presenting financial results, ServiceNow likes to emphasize its subscription revenues and billings — that’s the basis on which the company provides guidance. Subscription revenues in the quarter were $1.18 billion, up 32%, ahead of the guidance range of $1.155 and $1.16 billion. Subscription billings were $1.8 billion, ahead of the projected range of $1.63 billion and $1.65 billion.

For the March quarter, the company projects subscription revenue of $1.275 billion to $1.28 billion, ahead of the Street consensus as tracked by FactSet at $1.244 billion. ServiceNow sees billings of $1.31 billion to $1.315 billion, again ahead of consensus at $1.24 billion.

For all of 2021, ServiceNow sees subscription revenue in the $5.48 billion to $5.5 billion range, above the previous consensus at $5.35 billion, with subscription billings of $6.205 billion to $6.225 billion, ahead of the Street at $5.977 billion.

In an interview with Barron’s, CEO Bill McDermott said the company is benefitting from “the perfect intersection of digital transformation, cloud computing and business model innovation.” He views the company’s role as “managing the future of work,” and contends ServiceNow will be one of the biggest beneficiaries from the shift to cloud computing.

He notes that company added more net new customers in the quarter than ever before, and booked its largest single deal ever. “We’re firing on all cylinders,” McDermott says. “Our platform is resonating across the C-suite everywhere we go.” He notes that even while GDP in 2020 was contracting, investment in digital transformation is increasing.

Citi analyst Walter Pritchard points out in a research note that subscription revenue was 12% ahead of the Street, “the most significant upside we have seen ServiceNow report in at least three years.” He notes that the number of deals above $1 million were about in line with a year ago, suggesting that the upside came from smaller transactions.

ServiceNow in late trading is up 1.5%, to $524.