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ServiceNow (NOW) Stock Gains Despite Q4 Earnings Miss
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Shares of ServiceNow Inc (NOW - Free Report) increased more than 6% in after-hour trading following the company’s fourth-quarter 2016 results. The company reported earnings of 24 cents per share, which increased 26.3% from the year-ago quarter.
However, including stock-based compensation, the company reported loss of 15 cents per share, which missed the Zacks Consensus Estimate by a nickel.
Revenues of $385.7 million surged 35% year over year and easily surpassed the Zacks Consensus Estimate of $379 million. At constant currency (cc), revenues increased 37% year over year to $391.7 million.
In 2016, earnings were 70 cents per share as compared with 40 cents in 2015. Revenues increased 39% to approximately $1.40 billion. Total billings also surged 39% to $1.67 billion. The strong top-line growth has driven shares up in the past one year. ServiceNow has gained 16.8% as compared with the Zacks IT Services industry’s return of 10.2% in the same period.
Quarter Details
Subscription revenues (89.4% of total revenue) surged 40.8% from the year-ago quarter to $344.6 million. At cc, revenues increased 43% year over year to $350.3 million. Professional services and other revenues were almost flat at $41.1 million.
Total billings surged 46% year over year to $534.8 million. Subscription billings of $483.9 million represented 52% year-over-year growth, while Professional services and other billings increased 6% to $50.9 million.
During the quarter, ServiceNow won a record 27 new deals greater than $1 million in net new annualized contract value, and 31 net new Global 2000 customers.
Adjusted gross margin (including stock-based compensation) expanded 450 basis points (bps) year over year to 73.7%. The expansion was primarily driven by 130 bps growth in subscription gross margin.
Operating expenses, as percentage of revenues declined 20 bps to 78.7%, primarily due to lower sales and marketing and general & administrative expenses, which declined 140 and 90 bps, respectively. This fully offset a 210 bps growth in sales & marketing expense.
As a result, operating loss (including stock-based compensation) narrowed to $19.4 million as compared with loss of $28 million reported in the year-ago quarter.
ServiceNow, Inc. Price, Consensus and EPS Surprise
ServiceNow generated free cash flow of $111.2 million (29% of revenues) in the fourth quarter.
Guidance
For first-quarter 2017, total revenues are expected to grow 33–34% year over year in the range of $406–$411 million. Subscription revenues are forecasted between $366 and $370 million, representing 37% to 38% year-over-year growth. Professional services and other revenues are expected to grow 4% to 7% to $40–$41 million.
Total billings expected to grow 30% to 31% year over year in the range $490–$495 million. Subscription billings are anticipated between $443 and $447 million, representing 34% to 35% year-over-year growth. Professional services and other billings expected to grow 4–6% in the range of $47–$48 million.
Operating margin is forecasted to be 11%.
For full-year 2017, total revenue is forecasted between $1.820 and $1.850 billion, representing 31% to 33% year-over-year growth. Subscription revenues are expected to 34% to 35%, while Professional services and other revenues to grow 10% to 15%.
Total billings are anticipated between $2.165 and $2.195 billion, representing 28% to 30% year-over-year growth. Subscription billings are expected to grow 30–32% year over year, while Professional services and other billings to grow 8% to 14%.
Subscription and Professional services and other gross margin are forecasted to be 84% and 20%, respectively. Total gross margin is anticipated to be 77%, while operating margin is pegged at 16%.
Long-term earnings growth rate for Barracuda, SecureWorks and Science Applications are pegged at 21.3%, 25% and 5%, respectively.
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ServiceNow (NOW) Stock Gains Despite Q4 Earnings Miss
Shares of ServiceNow Inc (NOW - Free Report) increased more than 6% in after-hour trading following the company’s fourth-quarter 2016 results. The company reported earnings of 24 cents per share, which increased 26.3% from the year-ago quarter.
However, including stock-based compensation, the company reported loss of 15 cents per share, which missed the Zacks Consensus Estimate by a nickel.
Revenues of $385.7 million surged 35% year over year and easily surpassed the Zacks Consensus Estimate of $379 million. At constant currency (cc), revenues increased 37% year over year to $391.7 million.
In 2016, earnings were 70 cents per share as compared with 40 cents in 2015. Revenues increased 39% to approximately $1.40 billion. Total billings also surged 39% to $1.67 billion. The strong top-line growth has driven shares up in the past one year. ServiceNow has gained 16.8% as compared with the Zacks IT Services industry’s return of 10.2% in the same period.
Quarter Details
Subscription revenues (89.4% of total revenue) surged 40.8% from the year-ago quarter to $344.6 million. At cc, revenues increased 43% year over year to $350.3 million. Professional services and other revenues were almost flat at $41.1 million.
Total billings surged 46% year over year to $534.8 million. Subscription billings of $483.9 million represented 52% year-over-year growth, while Professional services and other billings increased 6% to $50.9 million.
During the quarter, ServiceNow won a record 27 new deals greater than $1 million in net new annualized contract value, and 31 net new Global 2000 customers.
Adjusted gross margin (including stock-based compensation) expanded 450 basis points (bps) year over year to 73.7%. The expansion was primarily driven by 130 bps growth in subscription gross margin.
Operating expenses, as percentage of revenues declined 20 bps to 78.7%, primarily due to lower sales and marketing and general & administrative expenses, which declined 140 and 90 bps, respectively. This fully offset a 210 bps growth in sales & marketing expense.
As a result, operating loss (including stock-based compensation) narrowed to $19.4 million as compared with loss of $28 million reported in the year-ago quarter.
ServiceNow, Inc. Price, Consensus and EPS Surprise
ServiceNow, Inc. Price, Consensus and EPS Surprise | ServiceNow, Inc. Quote
ServiceNow generated free cash flow of $111.2 million (29% of revenues) in the fourth quarter.
Guidance
For first-quarter 2017, total revenues are expected to grow 33–34% year over year in the range of $406–$411 million. Subscription revenues are forecasted between $366 and $370 million, representing 37% to 38% year-over-year growth. Professional services and other revenues are expected to grow 4% to 7% to $40–$41 million.
Total billings expected to grow 30% to 31% year over year in the range $490–$495 million. Subscription billings are anticipated between $443 and $447 million, representing 34% to 35% year-over-year growth. Professional services and other billings expected to grow 4–6% in the range of $47–$48 million.
Operating margin is forecasted to be 11%.
For full-year 2017, total revenue is forecasted between $1.820 and $1.850 billion, representing 31% to 33% year-over-year growth. Subscription revenues are expected to 34% to 35%, while Professional services and other revenues to grow 10% to 15%.
Total billings are anticipated between $2.165 and $2.195 billion, representing 28% to 30% year-over-year growth. Subscription billings are expected to grow 30–32% year over year, while Professional services and other billings to grow 8% to 14%.
Subscription and Professional services and other gross margin are forecasted to be 84% and 20%, respectively. Total gross margin is anticipated to be 77%, while operating margin is pegged at 16%.
Zacks Rank & Key Picks
ServiceNow currently carries a Zacks Rank #3 (Hold). Barracuda Networks , SecureWorks (SCWX - Free Report) and Science Applications International (SAIC - Free Report) , withal carrying a Zacks Rank #2 (Buy) are better-ranked stocks in the sector. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term earnings growth rate for Barracuda, SecureWorks and Science Applications are pegged at 21.3%, 25% and 5%, respectively.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>