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ServiceNow (NOW) Q4 Earnings Beat Estimates, Revenues Up Y/Y
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ServiceNow (NOW - Free Report) reported fourth-quarter 2023 adjusted earnings of $3.11 per share, which beat the Zacks Consensus Estimate by 12.27% and jumped 36.4% year over year.
Revenues of $2.44 billion beat the consensus mark by 1.67% and increased 25.6% year over year. At constant currency (cc), revenues increased 24%.
Subscription revenues improved 27.2% year over year to $2.37 billion. At cc, subscription revenues increased 25.5% year over year.
Professional services and other revenues decreased 10% year over year to $72 million. At cc, professional services and other revenues declined 21.5%.
In the reported quarter, ServiceNow had 168 deals greater than $1 million in net new annual contract value (NNACV), up 33% year over year. The company had 1,897 total customers with more than $1 million in ACV at the end of the fourth quarter, which represents 15.5% year-over-year growth in customers.
In the reported quarter, ServiceNow’s generative AI products drove the largest NNACV contribution for its first full quarter of any of the new product family releases in its history, including its original Pro SKU.
ServiceNow, Inc. Price, Consensus and EPS Surprise
During the reported quarter, ten new customers signed deals over $1 million in NNACV, including a $10 million win with a very large global financial services firm, which is ServiceNow’s largest new customer logo in history.
ServiceNow’s footprint continued to expand in the public sector with key wins, including in the United States Army, U.S. Postal Service and Australian Department of Defense Digital Delivery Group.
The renewal rate was 99% in the reported quarter, up 100 bps year over year. ITSM, ITOM and ITAM each had double-digit deals over $1 million in the reported quarter.
ServiceNow has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. Security and risk had a terrific quarter with 12 of the top 20 deals, out of which nine deals were more than $1 million. Customer, Employee and Creator workflows each had double-digit deals over $1 million.
At the end of the fourth quarter, the current remaining performance obligations (cRPO) were $8.6 billion, up 24% year over year and 23% at cc.
Remaining performance obligations, on a constant currency basis, rose 27.5% year over year to $18 billion.
Operating Details
In the fourth quarter, the non-GAAP gross margin was 82.4%, down 10 basis points (bps) on a year-over-year basis.
Subscription gross margin of 84.4% contracted 140 bps year over year. Professional services and other gross margins were 15.3%, up 900 bps year over year.
Total operating expenses were $1.65 billion in the reported quarter, up 20.5% year over year. As a percentage of revenues, operating expenses decreased 290 bps on a year-over-year basis.
ServiceNow’s non-GAAP operating margin expanded 300 bps on a year-over-year basis to 27.7%, driven by strong top-line growth and disciplined spending.
Balance Sheet & Cash Flow
As of Dec 31, 2023, the company had cash and cash equivalents and short-term investments of $4.88 billion compared with $4.07 billion as of Sep 30, 2023.
During the reported quarter, cash from operations was $1.61 billion compared with $311 million in the previous quarter.
ServiceNow generated a free cash flow of $1.34 billion in the reported quarter, up from $196 million reported in the prior quarter.
The company repurchased 0.4 million shares and has approximately $962 million remaining in authorization.
Guidance
For first-quarter 2024, subscription revenues are projected between $2.51 billion and $2.515 billion, suggesting an improvement in the range of 24.5-25% year over year on a GAAP basis. At cc, subscription revenues are expected to grow in the 23.5-24% range.
cRPO is expected to grow 20% year over year on both non-GAAP and GAAP basis, indicating significant strength in federal business.
ServiceNow expects non-GAAP operating margin to be 29% in the current quarter.
For 2024, the company now expects subscription revenues to be $10.555-$10.575 billion, which suggests a rise between 21.5% and 22% from 2023 on a GAAP basis. At cc, subscription revenues are expected to grow 21.5% over 2023.
ServiceNow expects the non-GAAP subscription gross margin to be 84.5% and the non-GAAP operating margin to be 29% (up from previous guidance of 26.5%). Moreover, the free cash flow margin is expected to be 31%.
Zacks Rank & Stocks to Consider
Currently, ServiceNow has a Zacks Rank #4 (Sell).
ServiceNow shares have outperformed the Zacks Computer & Technology sector in the past six months. While NOW shares have gained 31.1%, the Computer & Technology sector has increased 13.4%.
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ServiceNow (NOW) Q4 Earnings Beat Estimates, Revenues Up Y/Y
ServiceNow (NOW - Free Report) reported fourth-quarter 2023 adjusted earnings of $3.11 per share, which beat the Zacks Consensus Estimate by 12.27% and jumped 36.4% year over year.
Revenues of $2.44 billion beat the consensus mark by 1.67% and increased 25.6% year over year. At constant currency (cc), revenues increased 24%.
Subscription revenues improved 27.2% year over year to $2.37 billion. At cc, subscription revenues increased 25.5% year over year.
Professional services and other revenues decreased 10% year over year to $72 million. At cc, professional services and other revenues declined 21.5%.
In the reported quarter, ServiceNow had 168 deals greater than $1 million in net new annual contract value (NNACV), up 33% year over year. The company had 1,897 total customers with more than $1 million in ACV at the end of the fourth quarter, which represents 15.5% year-over-year growth in customers.
In the reported quarter, ServiceNow’s generative AI products drove the largest NNACV contribution for its first full quarter of any of the new product family releases in its history, including its original Pro SKU.
ServiceNow, Inc. Price, Consensus and EPS Surprise
ServiceNow, Inc. price-consensus-eps-surprise-chart | ServiceNow, Inc. Quote
During the reported quarter, ten new customers signed deals over $1 million in NNACV, including a $10 million win with a very large global financial services firm, which is ServiceNow’s largest new customer logo in history.
ServiceNow’s footprint continued to expand in the public sector with key wins, including in the United States Army, U.S. Postal Service and Australian Department of Defense Digital Delivery Group.
The renewal rate was 99% in the reported quarter, up 100 bps year over year. ITSM, ITOM and ITAM each had double-digit deals over $1 million in the reported quarter.
ServiceNow has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. Security and risk had a terrific quarter with 12 of the top 20 deals, out of which nine deals were more than $1 million. Customer, Employee and Creator workflows each had double-digit deals over $1 million.
At the end of the fourth quarter, the current remaining performance obligations (cRPO) were $8.6 billion, up 24% year over year and 23% at cc.
Remaining performance obligations, on a constant currency basis, rose 27.5% year over year to $18 billion.
Operating Details
In the fourth quarter, the non-GAAP gross margin was 82.4%, down 10 basis points (bps) on a year-over-year basis.
Subscription gross margin of 84.4% contracted 140 bps year over year. Professional services and other gross margins were 15.3%, up 900 bps year over year.
Total operating expenses were $1.65 billion in the reported quarter, up 20.5% year over year. As a percentage of revenues, operating expenses decreased 290 bps on a year-over-year basis.
ServiceNow’s non-GAAP operating margin expanded 300 bps on a year-over-year basis to 27.7%, driven by strong top-line growth and disciplined spending.
Balance Sheet & Cash Flow
As of Dec 31, 2023, the company had cash and cash equivalents and short-term investments of $4.88 billion compared with $4.07 billion as of Sep 30, 2023.
During the reported quarter, cash from operations was $1.61 billion compared with $311 million in the previous quarter.
ServiceNow generated a free cash flow of $1.34 billion in the reported quarter, up from $196 million reported in the prior quarter.
The company repurchased 0.4 million shares and has approximately $962 million remaining in authorization.
Guidance
For first-quarter 2024, subscription revenues are projected between $2.51 billion and $2.515 billion, suggesting an improvement in the range of 24.5-25% year over year on a GAAP basis. At cc, subscription revenues are expected to grow in the 23.5-24% range.
cRPO is expected to grow 20% year over year on both non-GAAP and GAAP basis, indicating significant strength in federal business.
ServiceNow expects non-GAAP operating margin to be 29% in the current quarter.
For 2024, the company now expects subscription revenues to be $10.555-$10.575 billion, which suggests a rise between 21.5% and 22% from 2023 on a GAAP basis. At cc, subscription revenues are expected to grow 21.5% over 2023.
ServiceNow expects the non-GAAP subscription gross margin to be 84.5% and the non-GAAP operating margin to be 29% (up from previous guidance of 26.5%). Moreover, the free cash flow margin is expected to be 31%.
Zacks Rank & Stocks to Consider
Currently, ServiceNow has a Zacks Rank #4 (Sell).
ServiceNow shares have outperformed the Zacks Computer & Technology sector in the past six months. While NOW shares have gained 31.1%, the Computer & Technology sector has increased 13.4%.
Shopify (SHOP - Free Report) , Pinterest (PINS - Free Report) and AvidXchange (AVDX - Free Report) are some better-ranked stocks that investors can consider in the broader sector, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Shopify shares have gained 36.9% in the past year. SHOP is set to report its fourth-quarter 2023 results on Feb 13.
Pinterest shares have gained 43.1% in the past year. PINS is set to report its fourth-quarter 2023 results on Feb 8.
AvidXchange shares have gained 0.9% in the trailing 12-months. AVDX is set to report its fourth-quarter 2023 results on Feb 28.