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ServiceNow (NOW) Down 4.6% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for ServiceNow (NOW - Free Report) . Shares have lost about 4.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is ServiceNow due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

ServiceNow Q4 Earnings Beat Estimates, Revenues Up Y/Y

ServiceNow 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.
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.


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%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -21.01% due to these changes.

VGM Scores

Currently, ServiceNow has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, ServiceNow has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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