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ServiceNow (NOW) Q3 Earnings & Revenues Surpass Estimates

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ServiceNow (NOW - Free Report) reported third-quarter 2021 adjusted earnings of $1.55 per share, which beat the Zacks Consensus Estimate by 11.5% and improved 28.1% year over year.

Revenues of $1.51 billion surpassed the consensus mark by 2.3% and increased 31.3% year over year. After adjusting for forex, revenues of $1.50 billion surged 30% year over year.

Subscription revenues improved 30.8% year over year to $1.43 billion. After adjusting for forex, subscription revenues increased 30% year over year to $1.42 billion.

Professional services and other revenues increased 39.3% year over year to $85 million. After adjusting for forex, professional services and other revenues climbed 38% year over year to $84 million.

ServiceNow has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. The company now has 1,266 total customers with more than $1 million in annual contract value, representing 25% year-over-year growth in customers.
 

ServiceNow, Inc. Price, Consensus and EPS Surprise

ServiceNow, Inc. Price, Consensus and EPS Surprise

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

 

The company’s expanding partner base is a positive. During the reported quarter, ServiceNow announced an expanded strategic partnership with Microsoft (MSFT - Free Report) in order to strengthen its portfolio offerings for the hybrid workforce. The company introduced a new collaborative app for its Employee Center that integrates with Microsoft Teams. ServiceNow and Microsoft will also invest in co-innovation and go-to-market efforts across ServiceNow workflows and Teams.

Billing Details

Total billings, on a non-GAAP basis, rose 28.4% year over year to $1.46 billion. After adjusting for forex, total billings increased 27% year over year to $1.45 billion.

Subscription billings of $1.38 billion advanced 28% year over year. After adjusting for forex, subscription billings were $1.37 billion, up 26%.

Professional services and other billings increased 42% to $84 million. After adjusting for forex, professional services and other billings were $83 million, up 41%.

Operating Details

In the third quarter, non-GAAP gross margin was 81.2%, which contracted 110 basis points (bps) on a year-over-year basis.

Subscription gross margin of 85% contracted 100 bps year over year. Professional services and other gross margin were 17% compared with year-ago quarter’s figure of 19%.

Total operating expenses, on a non-GAAP basis, were $836 million in the reported quarter, up 28.8% year over year.

ServiceNow’s non-GAAP operating margin contracted 10 bps on a year-over-year basis to 25.9%.

Balance Sheet & Cash Flow

As of Sep 30, 2021, ServiceNow had cash and cash equivalents, and short-term investments of $3.03 billion compared with $2.98 billion as of Jun 30, 2021.

During the reported quarter, cash from operations was $320 million compared with $300 million in the previous quarter.

ServiceNow generated free cash flow of $228 million in the quarter, down from $268 million reported in the prior quarter.

At the end of the third quarter, remaining performance obligations or RPO were $9.7 billion, surging 34% year over year.

Guidance

For fourth-quarter 2021, non-GAAP subscription billings are projected between $2.305 billion and $2.310 billion, which suggests an improvement of 26% year over year.

ServiceNow expects non-GAAP operating margin to be 22%.

For 2021, ServiceNow expects non-GAAP subscription billings to be $6.379-$6.384 billion, which suggests a rise of 28% from the year-ago reported figure.

ServiceNow continues to expect non-GAAP gross margin to be 85% and non-GAAP operating margin to be 25%. Moreover, non-GAAP free cash flow margin is expected to be 31.5%.

Zacks Rank & Stocks to Consider

Currently, ServiceNow has a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include Trimble (TRMB - Free Report) and Cognex (CGNX - Free Report) . Both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Trimble and Cognex are set to report their quarterly earnings on Nov 3 and Nov 4, respectively.


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