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ServiceNow (NOW) Q4 Earnings & Revenues Top Estimates, Stock Up

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ServiceNow (NOW - Free Report) reported fourth-quarter 2020 adjusted earnings of $1.17 per share, which beat the Zacks Consensus Estimate by 10.38% and improved 21.9% year over year.

Revenues of $1.25 billion surpassed the consensus mark by 2.67% and increased 30% year over year. After adjusting for forex, revenues of $1.23 billion surged 29% year over year.

Subscription revenues improved 32% year over year to $1.184 billion. After adjusting for forex, subscription revenues jumped 29% year over year to $1.161 billion.

Professional services and other revenues increased 26% year over year to $66 million. After adjusting for forex, professional services and other revenues climbed 23% to $65 million.

ServiceNow has been benefiting from rising adoption of its workflows by enterprises undergoing digital transformation.

Following impressive fourth-quarter results, and increasing adoption of its solutions and solid pipeline, ServiceNow’s shares are up 4.5% in the pre-market trading on Jan 28.

ServiceNow, Inc. Price, Consensus and EPS Surprise

ServiceNow, Inc. Price, Consensus and EPS Surprise

ServiceNow, Inc. price-consensus-eps-surprise-chart | ServiceNow, Inc. Quote

Billing Details

Total billings on a non-GAAP basis rose 40% year over year to $1.907 billion. After adjusting for forex, total billings increased 38% year over year to $1.874 billion.

Subscription billings of $1.828 billion advanced 41% year over year. After adjusting for forex, subscription billings were $1.796 billion, up 38%.

Professional services and other billings increased 31% to $80 million. After adjusting for forex, professional services and other billings were $78 million, up 29%.

Expanding Customer Base Remains Noteworthy

ServiceNow’s safe-workplace application suite and dashboard have been downloaded by more than 900 organizations worldwide including Raymond James, Standard & Poor's, and Rutgers University.

The company recently launched vaccine administration management applications. Management is optimistic as the State of North Carolina, Department of Health and Human Services has selected the ServiceNow platform to power its COVID-19 vaccine management system to facilitate quick and efficient vaccination to approximately 10 million North Carolinians.

In the quarter under review, ServiceNow completed 89 transactions with more than $1 million in net new annual contract value (ACV).

Currently, the company has 1,093 total customers with more than $1 million in ACV, up 23% year over year.

ServiceNow’s consistent renewal rate of 99% reflects the resilience of the business as the Now platform remains a mission-critical part of its customer’s operations.

In 2020, the company added nearly 700 net new customers, ending the year with 6,900 enterprises. The number of customers paying $5 million or more in ACV grew more than 40% in 2020.

Notably, 16 of the top 20 deals also included ITOM (or IT Operations Management), with 15 deals greater than $1 million.

Further, Customer workflows were included in 11 of top 20 deals, including wins from companies like AT&T (T - Free Report) , and 10 deals greater than $1 million.

ServiceNow sees $1 billion-plus market opportunity in Customer workflows. Moreover, the company witnessed solid momentum in employee workflow as the employee experience became vital in the pandemic era. The company noted that 11 of top 20 deals included employee workflows.

Operating Details

In the fourth quarter, non-GAAP gross margin was 82%, flat on a year-over-year basis. Subscription gross margin of 85% contracted 100 basis points (bps) year over year. Professional services and other gross margin was 16% compared with year-ago figure of 1%.

Total operating expenses on a non-GAAP basis were $742.7 million in the reported quarter, up 30.7% year over year.

ServiceNow’s non-GAAP operating margin was 22%, flat on a year-over-year basis.

Balance Sheet & Cash Flow

As of Dec 31, 2020, ServiceNow had cash and cash equivalents and short-term investments of $3.09 billion compared with $2.95 billion as of Sep 30, 2020.

During the reported quarter, cash from operations was $685.5 million, compared with $241.5 million in the previous quarter.

ServiceNow generated free cash flow of $565 million, up 65.1% year over year. Further, free cash flow margin was 45%, up 900 bps on a year-over-year basis.

At the end of the fourth quarter, remaining performance obligations were $8.9 billion, surging 35% year over year. Current RPO was approximately $4.4 billion, up 33% year over year.

Q1 Guidance

For first-quarter 2021, non-GAAP adjusted subscription revenues are anticipated between $1.275 billion and $1.280 billion (adjusted for constant currency), which indicates growth of 28-29% year over year.

Non-GAAP adjusted subscription billings are projected between $1.31 billion and $1.315 billion, which suggests an improvement of 24-25% year over year.

Further, ServiceNow expects non-GAAP operating margin to be 25%.

Markedly, ServiceNow anticipates current RPO growth to be 32%.

2021 Outlook

For 2021, ServiceNow projects non-GAAP adjusted subscription revenues between $5.48 billion and $5.50 billion, suggesting growth of 28% over 2020.

Non-GAAP adjusted subscription billings are projected to be $6.205-$6.225 billion, which suggests a rise of 25% from the year-ago reported figure. Further, ServiceNow expects non-GAAP subscription margin to be 85% and non-GAAP operating margin to be 23.5%.

Moreover, non-GAAP free cash flow margin is expected to be 30%.

Zacks Rank & Key Picks

ServiceNow currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the broader technology sector are Synaptics Incorporated (SYNA - Free Report) and Microchip (MCHP - Free Report) . Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Synaptics and Microchip are scheduled to report their quarterly results on Feb 4.

Long-term earnings growth rate of Synaptics and Microchip is pegged at 10% and 14.9%, respectively.

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