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ServiceNow (NOW) Q2 Earnings Beat Estimates, Revenues Up Y/Y
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ServiceNow (NOW - Free Report) reported second-quarter 2022 adjusted earnings of $1.62 per share, which beat the Zacks Consensus Estimate by 5.88% and improved 14.1% year over year.
Revenues of $1.75 billion lagged the consensus mark by 0.62% but increased 24.3% year over year. After adjusting for forex, revenues of $1.82 billion surged 29.5% year over year.
Subscription revenues improved 24.7% year over year to $1.66 billion. After adjusting for forex, subscription revenues increased 29.5% year over year to $1.72 billion, surpassing management’s guidance range of $1.715 - $1.720 billion.
Professional services and other revenues increased 19% year over year to $94 million. After adjusting for forex, professional services and other revenues increased 26% on a year-over-year basis to $100 million.
ServiceNow has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. The company now has 1,463 total customers with more than $1 million in annual contract value, representing 22% year-over-year growth in customers.
ServiceNow, Inc. Price, Consensus and EPS Surprise
ServiceNow has more than 100 customers with contract value worth $10 million, up 50% year over year, at the end of the reported quarter.
Renewal rate was 99% in the reported quarter compared with 97% reported in the year-ago quarter.
During the reported quarter, ServiceNow closed 52 transactions with more than $1 million in net new annual contract value, representing 41% year-over-year growth.
As of Jun 30, 2022, current remaining performance obligations (“cRPO”) were $5.75 billion, up 21% year-over-year. On a constant currency basis, current RPO increased 27%.
Remaining performance obligations, on a constant currency basis, rose 21% year over year to $11.5 billion.
Operating Details
In the second quarter, non-GAAP gross margin was 82%, which expanded 100 basis points (bps) on a year-over-year basis.
Subscription gross margin of 86.1% expanded 120 bps year over year. Professional services and other gross margins were 10.6% compared with the year-ago quarter’s figure of 16.5%.
Total operating expenses, on a non-GAAP basis, were $1.04 billion in the reported quarter, up 31.7% year over year. As a percentage of revenues, operating expenses increased 330 bps on a year-over-year basis.
ServiceNow’s non-GAAP operating margin contracted 230 bps on a year-over-year basis to 22.8%, better than management’s guidance of 22%.
Balance Sheet & Cash Flow
As of Jun 30, 2022, ServiceNow had cash and cash equivalents, and short-term investments of $3.83 billion compared with $4.01 billion as of Mar 31, 2022.
During the reported quarter, cash from operations was $433 million compared with $863 million in the previous quarter.
ServiceNow generated a free cash flow of $287 million in the quarter, down from $770 million reported in the prior quarter.
Guidance
For third-quarter 2022, subscription revenues are projected between $1.750 billion and $1.755 billion, suggesting an improvement of 27.5% year over year on a non-GAAP basis.
cRPO is expected to grow 23.5% year over year on a non-GAAP basis. Unfavorable forex is expected to hurt subscription revenues by $180 million.
ServiceNow expects the non-GAAP operating margin to be 25%.
For 2022, ServiceNow expects subscription revenues to be $6.915-$6.925 billion, which suggests a rise of 28% from the year-ago reported figure, on a non-GAAP basis.
Unfavorable forex is expected to hurt subscription revenues by $220 million in 2022.
ServiceNow expects non-GAAP subscription gross margin to be 86% and non-GAAP operating margin to be 25%. Moreover, the non-GAAP free cash flow margin is expected to be 30%.
Zacks Rank & Stocks to Consider
Currently, ServiceNow has a Zacks Rank #3 (Hold).
ServiceNow shares have underperformed the Zacks Computer & Technology sector year to date. While NOW shares have lost 30.9%, the Computer & Technology sector decreased 29.4%.
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ServiceNow (NOW) Q2 Earnings Beat Estimates, Revenues Up Y/Y
ServiceNow (NOW - Free Report) reported second-quarter 2022 adjusted earnings of $1.62 per share, which beat the Zacks Consensus Estimate by 5.88% and improved 14.1% year over year.
Revenues of $1.75 billion lagged the consensus mark by 0.62% but increased 24.3% year over year. After adjusting for forex, revenues of $1.82 billion surged 29.5% year over year.
Subscription revenues improved 24.7% year over year to $1.66 billion. After adjusting for forex, subscription revenues increased 29.5% year over year to $1.72 billion, surpassing management’s guidance range of $1.715 - $1.720 billion.
Professional services and other revenues increased 19% year over year to $94 million. After adjusting for forex, professional services and other revenues increased 26% on a year-over-year basis to $100 million.
ServiceNow has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. The company now has 1,463 total customers with more than $1 million in annual contract value, representing 22% year-over-year growth in customers.
ServiceNow, Inc. Price, Consensus and EPS Surprise
ServiceNow, Inc. price-consensus-eps-surprise-chart | ServiceNow, Inc. Quote
ServiceNow has more than 100 customers with contract value worth $10 million, up 50% year over year, at the end of the reported quarter.
Renewal rate was 99% in the reported quarter compared with 97% reported in the year-ago quarter.
During the reported quarter, ServiceNow closed 52 transactions with more than $1 million in net new annual contract value, representing 41% year-over-year growth.
As of Jun 30, 2022, current remaining performance obligations (“cRPO”) were $5.75 billion, up 21% year-over-year. On a constant currency basis, current RPO increased 27%.
Remaining performance obligations, on a constant currency basis, rose 21% year over year to $11.5 billion.
Operating Details
In the second quarter, non-GAAP gross margin was 82%, which expanded 100 basis points (bps) on a year-over-year basis.
Subscription gross margin of 86.1% expanded 120 bps year over year. Professional services and other gross margins were 10.6% compared with the year-ago quarter’s figure of 16.5%.
Total operating expenses, on a non-GAAP basis, were $1.04 billion in the reported quarter, up 31.7% year over year. As a percentage of revenues, operating expenses increased 330 bps on a year-over-year basis.
ServiceNow’s non-GAAP operating margin contracted 230 bps on a year-over-year basis to 22.8%, better than management’s guidance of 22%.
Balance Sheet & Cash Flow
As of Jun 30, 2022, ServiceNow had cash and cash equivalents, and short-term investments of $3.83 billion compared with $4.01 billion as of Mar 31, 2022.
During the reported quarter, cash from operations was $433 million compared with $863 million in the previous quarter.
ServiceNow generated a free cash flow of $287 million in the quarter, down from $770 million reported in the prior quarter.
Guidance
For third-quarter 2022, subscription revenues are projected between $1.750 billion and $1.755 billion, suggesting an improvement of 27.5% year over year on a non-GAAP basis.
cRPO is expected to grow 23.5% year over year on a non-GAAP basis. Unfavorable forex is expected to hurt subscription revenues by $180 million.
ServiceNow expects the non-GAAP operating margin to be 25%.
For 2022, ServiceNow expects subscription revenues to be $6.915-$6.925 billion, which suggests a rise of 28% from the year-ago reported figure, on a non-GAAP basis.
Unfavorable forex is expected to hurt subscription revenues by $220 million in 2022.
ServiceNow expects non-GAAP subscription gross margin to be 86% and non-GAAP operating margin to be 25%. Moreover, the non-GAAP free cash flow margin is expected to be 30%.
Zacks Rank & Stocks to Consider
Currently, ServiceNow has a Zacks Rank #3 (Hold).
ServiceNow shares have underperformed the Zacks Computer & Technology sector year to date. While NOW shares have lost 30.9%, the Computer & Technology sector decreased 29.4%.
Airbnb (ABNB - Free Report) , Aspen Technology (AZPN - Free Report) , and Fastly (FSLY - Free Report) are some better-ranked stocks that investors can consider in the broader sector. All three stocks have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Airbnb shares are down 35.5% year to date. ABNB is set to report second-quarter 2022 results on Aug 2.
Aspen shares are up 28.8% year to date. AZPN is set to report fourth-quarter fiscal 2022 results on Aug 8.
Fastly shares are down 68.7% year to date. FSLY is set to report second-quarter 2022 results on Aug 3.