ServiceNow Earnings: Continuing to Defy Gravity With Upside and Strength to Spare

ServiceNow Stock at a Glance

• Fair Value Estimate: $600
• Star Rating: 4 stars
• Uncertainty Rating: High
• Economic Moat Rating: Wide

ServiceNow Earnings Update

ServiceNow NOW exceeded our expectations for both revenue and profitability for its first quarter, provided solid guidance and raised its full-year outlook approximately in line with outperformance in the quarter. Robust demand coupled with continued tightly focused operations drove outperformance.

We are impressed with the company’s performance overall and view guidance as prudent, and are maintaining our fair value estimate of $600 per share for wide-moat ServiceNow. We continue to favor the stock as one of our top picks for both its resilient near-term performance and its long-term organic-driven growth—this is as it leverages its strength in workflow automation to bring its existing customers more deeply into IT, and more broadly with human resources and customer service-specific products, as well as its continued push into industry segment-specialized versions and operating efficiency.

Total revenue grew 22% year over year as reported, or 24.5% in constant currency, to $2.096 billion, which was ahead of our slightly below-consensus estimate. Performance was driven by solid results across the board, including segments, products, and geographies. We see good momentum in vertical solutions, which help both growth and margins, as these solutions enjoy a material pricing uplift.

Subscription revenue of $2.024 billion grew 24% year over year as reported, which was $24 million above the high end of guidance. Strength in large deals continues, with 66 deals in excess of $1 million in annual contract value. ServiceNow boasts 1,682 customers generating in excess of $1 million in ACV, which usually implies multiple solutions are involved. To that end, the firm won its largest-ever deal in EMEA—in the financial-services industry no less, and saw 18 of its 20 largest deals involve five or more products.