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ServiceNow (NOW) Q4 Earnings Beat Estimates, Revenues Up Y/Y
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ServiceNow (NOW - Free Report) reported fourth-quarter 2022 adjusted earnings of $2.28 per share, which beat the Zacks Consensus Estimate by 13.43% and jumped 56.2% year over year.
Revenues of $1.94 billion beat the consensus mark by 0.32% and increased 20.2% year over year. After adjusting for forex, revenues of $2.03 billion jumped 25.5% year over year.
Subscription revenues improved 22.1% year over year to $1.86 billion. After adjusting for forex, subscription revenues increased 27.5% year over year to $1.94 billion, surpassing management’s guidance range of 26-27% growth.
Professional services and other revenues decreased 12.1% year over year to $80 million. After adjusting for forex, professional services and other revenues decreased 6.5% on a year-over-year basis to $85 million.
ServiceNow has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. The company had 1,637 total customers with more than $1 million in annual contract value at the end of the fourth quarter.
ServiceNow, Inc. Price, Consensus and EPS Surprise
The renewal rate was 98% in the reported quarter, down 100 basis points (bps) year over year.
At the end of the fourth quarter, current remaining performance obligations (cRPO) were $6.94 billion, up 22% year over year. On a constant currency basis, cRPO increased 25.5%.
Remaining performance obligations, on a constant currency basis, rose 25% year over year to $14 billion after adjusting for forex.
Operating Details
In the fourth quarter, the non-GAAP gross margin was 82.5%, which expanded 140 bps on a year-over-year basis.
Subscription gross margin of 85.8% expanded 70 bps year over year. Professional services and other gross margins were 6.3% compared with the year-ago quarter’s figure of 15.4%.
Total operating expenses, on a non-GAAP basis, were $1.06 billion in the reported quarter, up 12.1% year over year. As a percentage of revenues, operating expenses decreased 390 bps on a year-over-year basis.
ServiceNow’s non-GAAP operating margin expanded 530 bps on a year-over-year basis to 28%.
Balance Sheet & Cash Flow
As of Dec 31, 2022, ServiceNow had cash and cash equivalents and short-term investments of $4.28 billion compared with $3.96 billion as of Sep 30, 2022.
During the reported quarter, cash from operations was $1.16 billion compared with $265 million in the previous quarter.
ServiceNow generated a free cash flow of $1.02 billion in the reported quarter, up from $103 million reported in the prior quarter.
Guidance
For first-quarter 2023, subscription revenues are projected between $1.990 billion and $2 billion, suggesting an improvement in the range of 22-22.5% year over year on a GAAP basis. At constant currency, subscription revenues are expected to grow in the 25-25.5% range.
cRPO is expected to grow 24% year over year on a non-GAAP basis and 21% on a GAAP basis.
ServiceNow expects the non-GAAP operating margin to be 24%.
For 2023, ServiceNow expects subscription revenues to be $8.440-$8.500 billion, which suggests a rise of 22.5-23.5% over 2022 on a GAAP basis. At constant currency, subscription revenues are expected to grow between 22.5% and 23.5% over 2022.
ServiceNow expects non-GAAP subscription gross margin to be 84% and non-GAAP operating margin to be 26%. Moreover, 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 outperformed the Zacks Computer & Technology sector in the past year. While NOW shares have lost 13.6%, the Computer & Technology sector declined 17.7%.
Image: Bigstock
ServiceNow (NOW) Q4 Earnings Beat Estimates, Revenues Up Y/Y
ServiceNow (NOW - Free Report) reported fourth-quarter 2022 adjusted earnings of $2.28 per share, which beat the Zacks Consensus Estimate by 13.43% and jumped 56.2% year over year.
Revenues of $1.94 billion beat the consensus mark by 0.32% and increased 20.2% year over year. After adjusting for forex, revenues of $2.03 billion jumped 25.5% year over year.
Subscription revenues improved 22.1% year over year to $1.86 billion. After adjusting for forex, subscription revenues increased 27.5% year over year to $1.94 billion, surpassing management’s guidance range of 26-27% growth.
Professional services and other revenues decreased 12.1% year over year to $80 million. After adjusting for forex, professional services and other revenues decreased 6.5% on a year-over-year basis to $85 million.
ServiceNow has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. The company had 1,637 total customers with more than $1 million in annual contract value at the end of the fourth quarter.
ServiceNow, Inc. Price, Consensus and EPS Surprise
ServiceNow, Inc. price-consensus-eps-surprise-chart | ServiceNow, Inc. Quote
The renewal rate was 98% in the reported quarter, down 100 basis points (bps) year over year.
At the end of the fourth quarter, current remaining performance obligations (cRPO) were $6.94 billion, up 22% year over year. On a constant currency basis, cRPO increased 25.5%.
Remaining performance obligations, on a constant currency basis, rose 25% year over year to $14 billion after adjusting for forex.
Operating Details
In the fourth quarter, the non-GAAP gross margin was 82.5%, which expanded 140 bps on a year-over-year basis.
Subscription gross margin of 85.8% expanded 70 bps year over year. Professional services and other gross margins were 6.3% compared with the year-ago quarter’s figure of 15.4%.
Total operating expenses, on a non-GAAP basis, were $1.06 billion in the reported quarter, up 12.1% year over year. As a percentage of revenues, operating expenses decreased 390 bps on a year-over-year basis.
ServiceNow’s non-GAAP operating margin expanded 530 bps on a year-over-year basis to 28%.
Balance Sheet & Cash Flow
As of Dec 31, 2022, ServiceNow had cash and cash equivalents and short-term investments of $4.28 billion compared with $3.96 billion as of Sep 30, 2022.
During the reported quarter, cash from operations was $1.16 billion compared with $265 million in the previous quarter.
ServiceNow generated a free cash flow of $1.02 billion in the reported quarter, up from $103 million reported in the prior quarter.
Guidance
For first-quarter 2023, subscription revenues are projected between $1.990 billion and $2 billion, suggesting an improvement in the range of 22-22.5% year over year on a GAAP basis. At constant currency, subscription revenues are expected to grow in the 25-25.5% range.
cRPO is expected to grow 24% year over year on a non-GAAP basis and 21% on a GAAP basis.
ServiceNow expects the non-GAAP operating margin to be 24%.
For 2023, ServiceNow expects subscription revenues to be $8.440-$8.500 billion, which suggests a rise of 22.5-23.5% over 2022 on a GAAP basis. At constant currency, subscription revenues are expected to grow between 22.5% and 23.5% over 2022.
ServiceNow expects non-GAAP subscription gross margin to be 84% and non-GAAP operating margin to be 26%. Moreover, 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 outperformed the Zacks Computer & Technology sector in the past year. While NOW shares have lost 13.6%, the Computer & Technology sector declined 17.7%.
Roper (ROP - Free Report) , Qorvo (QRVO - Free Report) and RingCentral (RNG - 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.
Roper shares are up 3.8% in the past year. ROP is set to report its fourth-quarter 2022 results on Jan 27.
Qorvo shares are down 17.4% in the past year. QRVO is set to report its third-quarter fiscal 2023 results on Feb 1.
RingCentral shares are down 75.9% in the past year. RNG is set to report its fourth-quarter 2022 results on Feb 15.