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ServiceNow Up 9% Post Q2 Earnings: Should You Buy NOW Stock?
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ServiceNow (NOW - Free Report) shares have surged 9% following its impressive second-quarter 2024 results. Year to date, NOW shares have returned 12.7%, outperforming the Zacks Computer & Technology sector’s gain of 10.6% and the S&P 500’s 9.2%.
ServiceNow has been benefiting from strong expansion in clientele as enterprises undergoing digital transformation continue to adopt its workflow solutions. NOW ended the second quarter of 2024 with 1988 total customers with more than $1 million in annual contract value (ACV), which represents 15% year-over-year growth in customers.
NOW’s growing Generative AI prowess and strong partner base make the stock very attractive for investors. Let’s dig deep to find out the fundamental strengths and opportunities presented by the NOW stock for investors.
Year-to-Date Performance
Image Source: Zacks Investment Research
Strong Portfolio Aids NOW’s Prospects
ServiceNow is extensively leveraging AI and machine learning technologies to boost the potency of its solutions. NOW’s expanding GenAI capabilities are noteworthy, as its total addressable market is expected to hit $275 billion in 2026.
In the second quarter of 2024, GenAI deals continued to gain traction with net new ACV for Now Assist, which doubled sequentially and was part of 11 deals worth more than $1 million in the reported quarter.
NOW had 14 deals greater than $5 million in net new ACV and four deals of more than $10 million. It closed 88 deals greater than $1 million net new ACV. Number of customers contributing more than $20 million or more grew nearly 40% year over year.
In terms of key businesses, ITOM, ITSM and Security and Risk won 10, nine and eight deals, respectively. Customer workflows, Employee Workflows and Creator won 14, 12 and 10 deals of more than $1 million, respectively.
Industry-wise, the U.S. federal witnessed a more than 50% year-over-year jump in net new ACV, along with manufacturing as well as energy and utilities. Healthcare & Life Sciences and Retail and Hospitality grew roughly 30% year over year.
Adobe, Stellantis, American Honda, Merck, Dell Technologies, ST Microelectronics, Bayer and LTIMindtree are some of the notable clients leveraging ServiceNow’s platform and tools.
Expanding Partner Base to Drive NOW’s Top Line
A strong partner base that includes the likes of Microsoft (MSFT - Free Report) , NVIDIA (NVDA - Free Report) , International Business Machines (IBM - Free Report) , Genesys, Fujitsu, Equinix and Infosys is strengthening NOW’s AI capabilities.
ServiceNow is expanding its partner base with the addition of Boomi. The collaboration will offer Boomi’s APIM solution to its customers to strengthen NOW’s suite of intelligent automation solutions.
ServiceNow also announced an investment in Prodapt, a leading provider of digital and network services for the telecom and technology industries. This is expected to expand NOW’s footprint in the telecom and technology sector.
Strong Liquidity Makes NOW Stock Attractive
A strong liquidity position with a cash balance of $5.41 billion as of Jun 30, 2024. ServiceNow generated a free cash flow of $359 million in the reported quarter.
NOW expects the free cash flow margin to be 31% for 2024.
The strong liquidity position allows NOW to pursue various growth opportunities, including acquisitions. ServiceNow recently completed the acquisition of Raytion to enhance GenAI-powered search and knowledge management capabilities on the Now Platform.
2024 Guidance Encouraging
ServiceNow expects third-quarter 2024 subscription revenues between $2.66 billion and $2.67 billion, suggesting an improvement in the range of 20-20.5% year over year on a GAAP basis. At constant currency, subscription revenues are expected to grow 20.5%.
ServiceNow expects the non-GAAP operating margin to be 29.5% in the current quarter.
For 2024, NOW expects subscription revenues to be $10.575-$10.585 billion, which suggests a rise of 22% from 2023, both on a GAAP and non-GAAP basis.
ServiceNow expects the non-GAAP subscription gross margin to be 84.5% and the non-GAAP operating margin to be 29.5% (up from the previous guidance of 29%).
Estimate Revision Shows Upward Movement
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2024 earnings is pegged at $13.81 per share, up 2.2% over the past 30 days, indicating a 28.11% year-over-year increase.
The consensus mark for third-quarter 2024 earnings is pegged at $3.46 per share, up 0.6% over the past 30 days, indicating an 18.49% year-over-year increase.
NOW Stock Overvalued
However, NOW stock is not so cheap, as the Value Style Score of F suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales ratio, NOW is trading at 13.39X, higher than its median of 13.01X and the Zacks Computer & Technology sector’s 5.83X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Conclusion
ServiceNow’s robust GenAI portfolio and strong partner base are expected to drive its clientele, thereby boosting subscription revenues. The Growth Style Score of B makes the stock attractive for growth-oriented investors.
Moreover, NOW shares are trading above the 50-day moving average, indicating a bullish trend.
Image: Bigstock
ServiceNow Up 9% Post Q2 Earnings: Should You Buy NOW Stock?
ServiceNow (NOW - Free Report) shares have surged 9% following its impressive second-quarter 2024 results. Year to date, NOW shares have returned 12.7%, outperforming the Zacks Computer & Technology sector’s gain of 10.6% and the S&P 500’s 9.2%.
ServiceNow has been benefiting from strong expansion in clientele as enterprises undergoing digital transformation continue to adopt its workflow solutions. NOW ended the second quarter of 2024 with 1988 total customers with more than $1 million in annual contract value (ACV), which represents 15% year-over-year growth in customers.
NOW’s growing Generative AI prowess and strong partner base make the stock very attractive for investors. Let’s dig deep to find out the fundamental strengths and opportunities presented by the NOW stock for investors.
Year-to-Date Performance
Image Source: Zacks Investment Research
Strong Portfolio Aids NOW’s Prospects
ServiceNow is extensively leveraging AI and machine learning technologies to boost the potency of its solutions. NOW’s expanding GenAI capabilities are noteworthy, as its total addressable market is expected to hit $275 billion in 2026.
In the second quarter of 2024, GenAI deals continued to gain traction with net new ACV for Now Assist, which doubled sequentially and was part of 11 deals worth more than $1 million in the reported quarter.
NOW had 14 deals greater than $5 million in net new ACV and four deals of more than $10 million. It closed 88 deals greater than $1 million net new ACV. Number of customers contributing more than $20 million or more grew nearly 40% year over year.
In terms of key businesses, ITOM, ITSM and Security and Risk won 10, nine and eight deals, respectively. Customer workflows, Employee Workflows and Creator won 14, 12 and 10 deals of more than $1 million, respectively.
Industry-wise, the U.S. federal witnessed a more than 50% year-over-year jump in net new ACV, along with manufacturing as well as energy and utilities. Healthcare & Life Sciences and Retail and Hospitality grew roughly 30% year over year.
Adobe, Stellantis, American Honda, Merck, Dell Technologies, ST Microelectronics, Bayer and LTIMindtree are some of the notable clients leveraging ServiceNow’s platform and tools.
Expanding Partner Base to Drive NOW’s Top Line
A strong partner base that includes the likes of Microsoft (MSFT - Free Report) , NVIDIA (NVDA - Free Report) , International Business Machines (IBM - Free Report) , Genesys, Fujitsu, Equinix and Infosys is strengthening NOW’s AI capabilities.
ServiceNow is expanding its partner base with the addition of Boomi. The collaboration will offer Boomi’s APIM solution to its customers to strengthen NOW’s suite of intelligent automation solutions.
ServiceNow also announced an investment in Prodapt, a leading provider of digital and network services for the telecom and technology industries. This is expected to expand NOW’s footprint in the telecom and technology sector.
Strong Liquidity Makes NOW Stock Attractive
A strong liquidity position with a cash balance of $5.41 billion as of Jun 30, 2024. ServiceNow generated a free cash flow of $359 million in the reported quarter.
NOW expects the free cash flow margin to be 31% for 2024.
The strong liquidity position allows NOW to pursue various growth opportunities, including acquisitions. ServiceNow recently completed the acquisition of Raytion to enhance GenAI-powered search and knowledge management capabilities on the Now Platform.
2024 Guidance Encouraging
ServiceNow expects third-quarter 2024 subscription revenues between $2.66 billion and $2.67 billion, suggesting an improvement in the range of 20-20.5% year over year on a GAAP basis. At constant currency, subscription revenues are expected to grow 20.5%.
ServiceNow expects the non-GAAP operating margin to be 29.5% in the current quarter.
For 2024, NOW expects subscription revenues to be $10.575-$10.585 billion, which suggests a rise of 22% from 2023, both on a GAAP and non-GAAP basis.
ServiceNow expects the non-GAAP subscription gross margin to be 84.5% and the non-GAAP operating margin to be 29.5% (up from the previous guidance of 29%).
Estimate Revision Shows Upward Movement
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for 2024 earnings is pegged at $13.81 per share, up 2.2% over the past 30 days, indicating a 28.11% year-over-year increase.
The consensus mark for third-quarter 2024 earnings is pegged at $3.46 per share, up 0.6% over the past 30 days, indicating an 18.49% year-over-year increase.
NOW Stock Overvalued
However, NOW stock is not so cheap, as the Value Style Score of F suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales ratio, NOW is trading at 13.39X, higher than its median of 13.01X and the Zacks Computer & Technology sector’s 5.83X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Conclusion
ServiceNow’s robust GenAI portfolio and strong partner base are expected to drive its clientele, thereby boosting subscription revenues. The Growth Style Score of B makes the stock attractive for growth-oriented investors.
Moreover, NOW shares are trading above the 50-day moving average, indicating a bullish trend.
Image Source: Zacks Investment Research
ServiceNow currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.