Yahoo Finance ServiceNow Rallies on Higher Subscription-Revenue Forecast
(Bloomberg) -- ServiceNow Inc., a maker of business workflow software, rallied after reporting profit that topped expectations and increased its forecast for constant currency growth, signaling that demand remains strong in a choppy economic environment.
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Third-quarter earnings excluding some items were $1.97 a share, the Santa Clara, California-based company said Wednesday in a statement. Analysts, on average, predicted $1.85 a share. Subscription revenue, which makes up the overwhelming majority of company sales, increased 22% to $1.74 billion in the period ended Sept. 30, in line with estimates. That growth was damped 6.5 percentage points by currency fluctuations.
The shares gained 13% to $415.67 at the close Thursday in New York, the biggest single-day gain since April 2016. The stock has dropped 36% this year.
Annual subscription revenue will increase 23% to $6.87 billion, the company said. In constant currency terms, that’s 28.5% growth, a half percentage point increase from ServiceNow’s previous guidance in July. Currency fluctuations will now cost $290 million this year, a 5.5 percentage point headwind.
While the numbers themselves “are not stellar,” the market was anxious after a surprise guidance miss by Microsoft Corp. on Tuesday, wrote Raimo Lenschow, an analyst at Barclays Capital. Rob Owens of Piper Sandler said the results were better than feared, with momentum in large deals underpinning a strong quarter.
ServiceNow sells applications that help companies organize and automate their personnel, customer service and information technology operations. Its subscription-based sales have been affected by customers hesitating to sign large deals and a strengthening US dollar, which reduces revenue pulled in from overseas clients.
Executives remained bullish about the company’s future. “We continue to see a robust pipeline and are maintaining our investments in growth hires as the opportunity in front of us remains enormous,” Chief Financial Officer Gina Mastantuono said in the statement. The CFO told analysts on a conference call after the results that she is “confident” the company’s guidance factors in the difficult economic climate.
Current remaining performance obligations, which are contract sales that will be recognized as revenue in the next 12 months, gained 18% to $5.87 billion in the quarter, missing analysts’ average estimate of $6.02 billion, according to data compiled by Bloomberg.
ServiceNow said it had 1,530 customers with more than $1 million in annual contract value when the period ended, a 22% increase from a year earlier. Customers paying over $10 million in annual contract value grew 60%, the company said.
“ServiceNow matched consensus and came in exactly where they said, so no slowdown here,” said Anurag Rana of Bloomberg Intelligence. “We continue to expect that demand could slow in 2023 with more cautious tech budgets, but it may remain resilient, given the critical nature of ServiceNow’s business.”
ServiceNow also announced that Chief Executive Officer Bill McDermott was also named chairman, succeeding founder Fred Luddy who will remain on the board of directors.
(Updates with closing shares in the third paragraph.)
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