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ServiceNow (NOW) Down 1.9% 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 1.9% in that time frame, outperforming 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 Q2 Earnings Beat Estimates, Revenues Up Y/Y
ServiceNow reported second-quarter 2023 adjusted earnings of $2.37 per share, which beat the Zacks Consensus Estimate by 15.61% and jumped 46.3% year over year.
Revenues of $2.15 billion beat the consensus mark by 0.99% and increased 22.7% year over year. At constant currency, revenues increased 22.5%.
Subscription revenues improved 25.2% year over year to $2.08 billion. Professional services and other revenues decreased 20.2% year over year to $75 million.
The company’s shares have outperformed the Zacks Computer & Technology sector year to date. While NOW shares have gained 48.7%, the Computer & Technology sector increased 40.5%.
ServiceNow has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. The company had 1,724 total customers with more than $1 million in annual contract value (ACV) at the end of the second quarter.
ServiceNow ended second-quarter 2023 with 45 customers with more than $20 million in ACV, up 55% year over year.
The renewal rate was 99% in the reported quarter, unchanged year over year.
At the end of the second quarter, the current remaining performance obligations (cRPO) were $7.2 billion, up 25% year over year. On a constant currency basis, cRPO increased 24%.
Remaining performance obligations, on a constant currency basis, rose 22.5% year over year to $14.2 billion.
Operating Details
In the second quarter, the non-GAAP gross margin was 82%, unchanged on a year-over-year basis.
Subscription gross margin of 84.6% contracted 150 bps year over year. Professional services and other gross margins were 10.7%, unchanged year over year.
Total operating expenses, on a non-GAAP basis, were $1.56 billion in the reported quarter, up 16.5% 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 250 bps on a year-over-year basis to 25.3%.
Balance Sheet & Cash Flow
As of Jun 30, 2023, the company had cash and cash equivalents and short-term investments of $4.75 billion compared with $4.91 billion as of Mar 31, 2023.
During the reported quarter, cash from operations was $580 million compared with $902 million in the previous quarter.
ServiceNow generated a free cash flow of $451 million in the reported quarter, down from $737 million reported in the prior quarter.
Guidance
For third-quarter 2023, subscription revenues are projected between $2.185 billion and $2.195 billion, suggesting an improvement in the range of 25.5-26% year over year on a GAAP basis. At constant currency, subscription revenues are expected to grow in the 23-23.5% range.
cRPO is expected to grow 21.5% year over year on a non-GAAP basis and 25.5% on a GAAP basis.
ServiceNow expects the non-GAAP operating margin to be 27%.
For 2023, the company expects subscription revenues to be $8.580-$8.600 billion, which suggests a rise of 24.5-25% over 2022 on a GAAP basis. At constant currency, subscription revenues are expected to grow 25% over 2022.
ServiceNow expects the non-GAAP subscription gross margin to be 84% and the non-GAAP operating margin to be 26.5%. Moreover, the free cash flow margin is expected to be 30%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 13.96% due to these changes.
VGM Scores
At this time, ServiceNow has a strong Growth Score of A, a grade with the same score on the momentum front. However, 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.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, ServiceNow has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
ServiceNow is part of the Zacks Computers - IT Services industry. Over the past month, Infosys (INFY - Free Report) , a stock from the same industry, has gained 3%. The company reported its results for the quarter ended June 2023 more than a month ago.
Infosys reported revenues of $4.62 billion in the last reported quarter, representing a year-over-year change of +3.9%. EPS of $0.17 for the same period compares with $0.16 a year ago.
Infosys is expected to post earnings of $0.18 per share for the current quarter, representing no change from the year-ago quarter. Over the last 30 days, the Zacks Consensus Estimate has changed -0.9%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Infosys. Also, the stock has a VGM Score of B.
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ServiceNow (NOW) Down 1.9% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for ServiceNow (NOW - Free Report) . Shares have lost about 1.9% in that time frame, outperforming 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 Q2 Earnings Beat Estimates, Revenues Up Y/Y
ServiceNow reported second-quarter 2023 adjusted earnings of $2.37 per share, which beat the Zacks Consensus Estimate by 15.61% and jumped 46.3% year over year.
Revenues of $2.15 billion beat the consensus mark by 0.99% and increased 22.7% year over year. At constant currency, revenues increased 22.5%.
Subscription revenues improved 25.2% year over year to $2.08 billion. Professional services and other revenues decreased 20.2% year over year to $75 million.
The company’s shares have outperformed the Zacks Computer & Technology sector year to date. While NOW shares have gained 48.7%, the Computer & Technology sector increased 40.5%.
ServiceNow has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. The company had 1,724 total customers with more than $1 million in annual contract value (ACV) at the end of the second quarter.
ServiceNow ended second-quarter 2023 with 45 customers with more than $20 million in ACV, up 55% year over year.
The renewal rate was 99% in the reported quarter, unchanged year over year.
At the end of the second quarter, the current remaining performance obligations (cRPO) were $7.2 billion, up 25% year over year. On a constant currency basis, cRPO increased 24%.
Remaining performance obligations, on a constant currency basis, rose 22.5% year over year to $14.2 billion.
Operating Details
In the second quarter, the non-GAAP gross margin was 82%, unchanged on a year-over-year basis.
Subscription gross margin of 84.6% contracted 150 bps year over year. Professional services and other gross margins were 10.7%, unchanged year over year.
Total operating expenses, on a non-GAAP basis, were $1.56 billion in the reported quarter, up 16.5% 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 250 bps on a year-over-year basis to 25.3%.
Balance Sheet & Cash Flow
As of Jun 30, 2023, the company had cash and cash equivalents and short-term investments of $4.75 billion compared with $4.91 billion as of Mar 31, 2023.
During the reported quarter, cash from operations was $580 million compared with $902 million in the previous quarter.
ServiceNow generated a free cash flow of $451 million in the reported quarter, down from $737 million reported in the prior quarter.
Guidance
For third-quarter 2023, subscription revenues are projected between $2.185 billion and $2.195 billion, suggesting an improvement in the range of 25.5-26% year over year on a GAAP basis. At constant currency, subscription revenues are expected to grow in the 23-23.5% range.
cRPO is expected to grow 21.5% year over year on a non-GAAP basis and 25.5% on a GAAP basis.
ServiceNow expects the non-GAAP operating margin to be 27%.
For 2023, the company expects subscription revenues to be $8.580-$8.600 billion, which suggests a rise of 24.5-25% over 2022 on a GAAP basis. At constant currency, subscription revenues are expected to grow 25% over 2022.
ServiceNow expects the non-GAAP subscription gross margin to be 84% and the non-GAAP operating margin to be 26.5%. Moreover, the free cash flow margin is expected to be 30%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 13.96% due to these changes.
VGM Scores
At this time, ServiceNow has a strong Growth Score of A, a grade with the same score on the momentum front. However, 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.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, ServiceNow has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
ServiceNow is part of the Zacks Computers - IT Services industry. Over the past month, Infosys (INFY - Free Report) , a stock from the same industry, has gained 3%. The company reported its results for the quarter ended June 2023 more than a month ago.
Infosys reported revenues of $4.62 billion in the last reported quarter, representing a year-over-year change of +3.9%. EPS of $0.17 for the same period compares with $0.16 a year ago.
Infosys is expected to post earnings of $0.18 per share for the current quarter, representing no change from the year-ago quarter. Over the last 30 days, the Zacks Consensus Estimate has changed -0.9%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Infosys. Also, the stock has a VGM Score of B.