What to Expect From ServiceNow’s Q1 Results?

ServiceNow (NYSE:NOW) announced first-quarter earnings with a significant increase in adjusted earnings per share (EPS) to $3.41, up from $2.37 a year earlier, beating the consensus of $3.16. Revenue also outpaced expectations, amounting to $2.60 billion compared to an anticipated $2.58 billion.

The company's subscription revenue aligned with expectations at $2.52 billion. However, ServiceNow provided a softer forecast for the second quarter, expecting subscription revenue between $2.525 billion and $2.53 billion, slightly below the forecast of $2.54 billion. This guidance adjustment led to a 4% drop in ServiceNow’s stock in pre-market today.

For the full year, ServiceNow tightened its subscription revenue outlook to between $10.56 billion and $10.58 billion, marginally under the consensus estimate of $10.59 billion.

Notably, the company reported an adjusted gross margin of 83%, surpassing the expected 82.6%. The subscription gross margin was particularly strong at 86%, well above the forecasted 84.7%.

ServiceNow also highlighted a significant rise in free cash flow, which reached $1.23 billion, surpassing estimates of $961.1 million.

Needham analysts increased their price target for ServiceNow (NYSE:NOW) to $900 from $660, while reiterating their Buy rating.

The analysts maintained a positive outlook on ServiceNow shares leading up to the company's earnings announcement on Wednesday. They believe that the management's conservative approach to the 2024 Subscription Revenue target of $10.4 billion, set during the May 2023 Financial Analyst Day, leaves room for outperformance.

At the time of this forecast, ServiceNow had not yet launched its Pro+ SKUs, finalized SKU pricing, or fully gauged customer interest and pipeline development. Moreover, the company had not incorporated its GenAI offerings into the product roadmap.

Given ServiceNow’s subscription revenue model and its consistent outperformance throughout 2023, the analysts expect the company to surpass its initial $10.4 billion target (with a consensus estimate of $10.5 billion). They emphasized ServiceNow's potential as a sustainable growth company, with over 20% annual growth driven by its subscription-based revenue model, comprehensive platform offerings, and the emerging monetization of its GenAI technology.

Needham analysts increased their price target for ServiceNow (NYSE:NOW) to $900 from $660, while reiterating their Buy rating.

The analysts maintained a positive outlook on ServiceNow shares leading up to the company's earnings announcement on Wednesday. They believe that the management's conservative approach to the 2024 Subscription Revenue target of $10.4 billion, set during the May 2023 Financial Analyst Day, leaves room for outperformance.

At the time of this forecast, ServiceNow had not yet launched its Pro+ SKUs, finalized SKU pricing, or fully gauged customer interest and pipeline development. Moreover, the company had not incorporated its GenAI offerings into the product roadmap.

Given ServiceNow’s subscription revenue model and its consistent outperformance throughout 2023, the analysts expect the company to surpass its initial $10.4 billion target (with a consensus estimate of $10.5 billion). They emphasized ServiceNow's potential as a sustainable growth company, with over 20% annual growth driven by its subscription-based revenue model, comprehensive platform offerings, and the emerging monetization of its GenAI technology.

Evercore ISI analysts increased their price target for ServiceNow (NYSE:NOW) from $725.00 to $800.00, while continuing to recommend an Outperform rating. This adjustment follows the results of a positive partner survey.

The analysts noted that although ServiceNow shares have seen a significant rise since the third fiscal quarter results, investors might need to exercise some patience in the near term. The partner survey, which gathered insights from 15 major ServiceNow partners, suggests that estimates for 2024 should lean towards an upward adjustment. It also underscores the potential benefits from the Pro+ SKU.

Regarding the fourth fiscal quarter results, the analysts anticipate ServiceNow to achieve modestly better performance than the current outlook and Street estimates, which are both at $2.4 billion in revenue. The expected Compound Recurring Profit Order (CRPO) growth is around 20.5% (21% in constant currency).

Shares of ServiceNow (NYSE:NOW) rose more than 3% during Thursday's pre-market trading in response to their recently announced Q3 results and an upward revision in guidance.

For Q3, the company reported an EPS of $2.92, surpassing the Street expectation of $2.56. The revenue surged 25% year-on-year to $2.29 billion, higher than the anticipated $2.27 billion. Within this, subscription revenues reached $2.216 billion, marking a 27% growth. The company's current remaining performance obligations also exhibited growth, increasing by 27% from the previous year to stand at $7.43 billion.

Looking ahead, ServiceNow projects its Q4/23 subscription revenues to fall between $2.320 billion and $2.325 billion, indicating a growth of roughly 24.5%-25% from the previous year. For the entire year, they anticipate subscription revenues to range between $8.635 billion and $8.640 billion, which would mean an approximate 25.5% year-on-year increase.

RBC Capital analysts provided their views on ServiceNow, Inc. (NYSE:NOW) ahead of the company’s Analyst Day this week.

The analysts believe the focus remains on the long-term product roadmap with a heavy dose of generative AI, workflow, and platform spend consolidation.

At the 2022 analyst day, subscription revenue guidance moved higher to $11 billion or more in 2024 and $16 billion or more in 2026. Additionally, operating margin guidance moved higher to 27% in 2024 vs. 26.5% at the 2021 analyst day while free cash flow margin was maintained at 33%.

Given incremental macro pressure as well as FX headwinds over the past year, the analysts believe most investors think the 2024 revenue guide will move back down to $10 billion for 2024 with free cash flow margins likely in the 31-32% range.

ServiceNow (NYSE:NOW) reported strong Q1 results yesterday, beating expectations as demand trends remained durable, including growth in the financial services vertical, despite broader volatility.

Q1 EPS came in at $2.37, beating the Street estimate of $2.04. Revenue was $2.14 billion, better than the Street estimate of $2.08 billion.

According to the analysts at RBC Capital, the sales pipeline remains strong as they believe management remains prudent in the near term. That said, due to FX and ongoing macro pressures, the analysts believe long-term targets likely move lower at the upcoming investor day, which is something investors expected.

For the full year, the company expects subscription revenues to be in the range of $8.47-$8.52 billion.