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Why Is ServiceNow (NOW) Down 5.1% Since Last Earnings Report?
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It has been about a month since the last earnings report for ServiceNow (NOW - Free Report) . Shares have lost about 5.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is ServiceNow due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
ServiceNow Q1 Earnings & Revenues Top Estimates, Up Y/Y
ServiceNow reported first-quarter 2021 adjusted earnings of $1.52 per share, which beat the Zacks Consensus Estimate by 13.43% and improved 30.4% year over year.
Revenues of $1.36 billion surpassed the consensus mark by 1.83% and increased 30% year over year. After adjusting for forex, revenues of $1.321 billion surged 26% year over year.
Subscription revenues improved 30% year over year to $1.293 billion. After adjusting for forex, subscription revenues jumped 26% year over year to $1.256 billion.
Professional services and other revenues increased 31% year over year to $67 million. After adjusting for forex, professional services and other revenues climbed 27% to $65 million.
ServiceNow has been benefiting from rising adoption of its workflows by enterprises undergoing digital transformation.
Billing Details
Total billings on a non-GAAP basis rose 30% year over year to $1.435 billion. After adjusting for forex, total billings increased 25% year over year to $1.383 billion.
Subscription billings of $1.365 billion advanced 29% year over year. After adjusting for forex, subscription billings were $1.315 billion, up 25%.
Professional services and other billings increased 46% to $70 million. After adjusting for forex, professional services and other billings were $68 million, up 42%.
Expanding Customer Base Remains Noteworthy
ServiceNow has been witnessing traction across its latest vaccine administration management applications. Management is optimistic as Children's Hospitals and Clinics of Minnesota and Germany's largest state, North Rhine-Westphalia, have selected the ServiceNow platform to power its COVID-19 vaccine management system to facilitate quick and efficient vaccination.
In the quarter under review, ServiceNow completed 37 transactions with more than $1 million in annual contract value (ACV), including seven net new customers. The number of customers paying $5 million or more in ACV grew more than 50%.
Currently, the company has 1,146 total customers with more than $1 million in ACV, up 23% year over year and up 53 sequentially. Markedly, in December quarter, the customers grew by 82 on a sequential basis to 1,093.
ServiceNow’s consistent renewal rate of 97% reflects the resilience of the company’s business as the Now platform remains a mission-critical part of its customer’s operations.
The company ended the first quarter with 6,900 enterprise customers, including more than 80% of the Fortune 500 companies, as defined by an annual ranking by the Fortune magazine.
Notably, 13 of the top 20 deals also included ITOM (or IT Operations Management), while IT Service Management (ITSM) was in 12 of the top 20 deals.
Further, creator workflows, the company’s platform business, was included in 19 of top 20 deals. The company is witnessing strength in customer workflows, with wins from companies like Lumen Technologies.
Moreover, the company witnessed solid momentum in employee workflow as the employee experience became vital amid the pandemic. The company noted that eight of top 20 deals included employee workflows.
Also, the company is encouraged by more multi-product deal wins as 17 of top 20 deals included three or more products.
Operating Details
In the first quarter, non-GAAP gross margin was 82%, which contracted 100 basis points (bps) on a year-over-year basis. Subscription gross margin of 86% contracted 100 bps year over year. Professional services and other gross margin was 14% compared with year-ago figure of 0%.
Total operating expenses on a non-GAAP basis were $743 million in the reported quarter, up 21.2% year over year.
ServiceNow’s non-GAAP operating margin expanded 300 bps on a year-over-year basis to 27%.
Balance Sheet & Cash Flow
As of Mar 31, 2021, ServiceNow had cash and cash equivalents and short-term investments of $3.456 billion compared with $3.09 billion as of Dec 31, 2020.
During the reported quarter, cash from operations was $727 million, compared with $685.5 million in the previous quarter.
ServiceNow generated free cash flow of $627 million, up from $565 million reported in the prior quarter. Further, free cash flow margin was 45%, up 100 bps on a quarter-over-quarter basis.
At the end of the first quarter, remaining performance obligations (RPO) were $8.8 billion, surging 34% year over year. After adjusting for forex, RPO totaled $8.6 billion, surging 30% year over year. Current RPO was approximately $4.4 billion, up 33% year over year. After adjusting for forex, current RPO came in at $4.3 billion, climbing 29% year over year.
Q2 Guidance
For second-quarter 2021, non-GAAP adjusted subscription revenues are anticipated between $1.29 billion and $1.295 billion (adjusted for constant currency), which indicates growth of 27-28% year over year.
Non-GAAP adjusted subscription billings are projected between $1.25 billion and $1.255 billion, which suggests an improvement of 23% year over year.
Further, ServiceNow expects non-GAAP operating margin to be 22%. Markedly, ServiceNow anticipates current RPO growth to be 30%.
2021 Outlook
For 2021, ServiceNow now projects subscription revenues between $5.455 billion and $5.47 billion, suggesting growth of 27-28% over 2020. The company had previously guided subscription revenues between $5.48 billion and $5.50 billion.
Non-GAAP adjusted subscription billings are now projected to be $6.19-$6.205 billion, which suggests a rise of 24-25% from the year-ago reported figure. The company had previously guided adjusted subscription billings between $6.205 and $6.225 billion.
ServiceNow continues to expect non-GAAP subscription margin to be 85% and non-GAAP operating margin to be 23.5%. Moreover, non-GAAP free cash flow margin is expected to be 30%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 9.63% due to these changes.
VGM Scores
Currently, ServiceNow has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, ServiceNow has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is ServiceNow (NOW) Down 5.1% Since Last Earnings Report?
It has been about a month since the last earnings report for ServiceNow (NOW - Free Report) . Shares have lost about 5.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is ServiceNow due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
ServiceNow Q1 Earnings & Revenues Top Estimates, Up Y/Y
ServiceNow reported first-quarter 2021 adjusted earnings of $1.52 per share, which beat the Zacks Consensus Estimate by 13.43% and improved 30.4% year over year.
Revenues of $1.36 billion surpassed the consensus mark by 1.83% and increased 30% year over year. After adjusting for forex, revenues of $1.321 billion surged 26% year over year.
Subscription revenues improved 30% year over year to $1.293 billion. After adjusting for forex, subscription revenues jumped 26% year over year to $1.256 billion.
Professional services and other revenues increased 31% year over year to $67 million. After adjusting for forex, professional services and other revenues climbed 27% to $65 million.
ServiceNow has been benefiting from rising adoption of its workflows by enterprises undergoing digital transformation.
Billing Details
Total billings on a non-GAAP basis rose 30% year over year to $1.435 billion. After adjusting for forex, total billings increased 25% year over year to $1.383 billion.
Subscription billings of $1.365 billion advanced 29% year over year. After adjusting for forex, subscription billings were $1.315 billion, up 25%.
Professional services and other billings increased 46% to $70 million. After adjusting for forex, professional services and other billings were $68 million, up 42%.
Expanding Customer Base Remains Noteworthy
ServiceNow has been witnessing traction across its latest vaccine administration management applications. Management is optimistic as Children's Hospitals and Clinics of Minnesota and Germany's largest state, North Rhine-Westphalia, have selected the ServiceNow platform to power its COVID-19 vaccine management system to facilitate quick and efficient vaccination.
In the quarter under review, ServiceNow completed 37 transactions with more than $1 million in annual contract value (ACV), including seven net new customers. The number of customers paying $5 million or more in ACV grew more than 50%.
Currently, the company has 1,146 total customers with more than $1 million in ACV, up 23% year over year and up 53 sequentially. Markedly, in December quarter, the customers grew by 82 on a sequential basis to 1,093.
ServiceNow’s consistent renewal rate of 97% reflects the resilience of the company’s business as the Now platform remains a mission-critical part of its customer’s operations.
The company ended the first quarter with 6,900 enterprise customers, including more than 80% of the Fortune 500 companies, as defined by an annual ranking by the Fortune magazine.
Notably, 13 of the top 20 deals also included ITOM (or IT Operations Management), while IT Service Management (ITSM) was in 12 of the top 20 deals.
Further, creator workflows, the company’s platform business, was included in 19 of top 20 deals. The company is witnessing strength in customer workflows, with wins from companies like Lumen Technologies.
Moreover, the company witnessed solid momentum in employee workflow as the employee experience became vital amid the pandemic. The company noted that eight of top 20 deals included employee workflows.
Also, the company is encouraged by more multi-product deal wins as 17 of top 20 deals included three or more products.
Operating Details
In the first quarter, non-GAAP gross margin was 82%, which contracted 100 basis points (bps) on a year-over-year basis. Subscription gross margin of 86% contracted 100 bps year over year. Professional services and other gross margin was 14% compared with year-ago figure of 0%.
Total operating expenses on a non-GAAP basis were $743 million in the reported quarter, up 21.2% year over year.
ServiceNow’s non-GAAP operating margin expanded 300 bps on a year-over-year basis to 27%.
Balance Sheet & Cash Flow
As of Mar 31, 2021, ServiceNow had cash and cash equivalents and short-term investments of $3.456 billion compared with $3.09 billion as of Dec 31, 2020.
During the reported quarter, cash from operations was $727 million, compared with $685.5 million in the previous quarter.
ServiceNow generated free cash flow of $627 million, up from $565 million reported in the prior quarter. Further, free cash flow margin was 45%, up 100 bps on a quarter-over-quarter basis.
At the end of the first quarter, remaining performance obligations (RPO) were $8.8 billion, surging 34% year over year. After adjusting for forex, RPO totaled $8.6 billion, surging 30% year over year. Current RPO was approximately $4.4 billion, up 33% year over year. After adjusting for forex, current RPO came in at $4.3 billion, climbing 29% year over year.
Q2 Guidance
For second-quarter 2021, non-GAAP adjusted subscription revenues are anticipated between $1.29 billion and $1.295 billion (adjusted for constant currency), which indicates growth of 27-28% year over year.
Non-GAAP adjusted subscription billings are projected between $1.25 billion and $1.255 billion, which suggests an improvement of 23% year over year.
Further, ServiceNow expects non-GAAP operating margin to be 22%. Markedly, ServiceNow anticipates current RPO growth to be 30%.
2021 Outlook
For 2021, ServiceNow now projects subscription revenues between $5.455 billion and $5.47 billion, suggesting growth of 27-28% over 2020. The company had previously guided subscription revenues between $5.48 billion and $5.50 billion.
Non-GAAP adjusted subscription billings are now projected to be $6.19-$6.205 billion, which suggests a rise of 24-25% from the year-ago reported figure. The company had previously guided adjusted subscription billings between $6.205 and $6.225 billion.
ServiceNow continues to expect non-GAAP subscription margin to be 85% and non-GAAP operating margin to be 23.5%. Moreover, non-GAAP free cash flow margin is expected to be 30%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 9.63% due to these changes.
VGM Scores
Currently, ServiceNow has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, ServiceNow has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.