ServiceNow, Inc. (NOW - Free Report) reported non-GAAP earnings of 35 cents per share in fourth-quarter 2017. The figure was in line with the Zacks Consensus Estimate and increased 45.8% on a year-over-year basis.
The company reported revenues of $546 million, which beat the Zacks Consensus Estimate of $535 million. Non-GAAP revenues (excluding impact of Foreign exchange) of $531.8 million surged 37.9% year over year. Management had guided 34-35% year-over-year growth in revenues to the range of $517-$522 million.
ServiceNow noted that expanding range of application based products witnessed huge adoption, which backed its impressive performance in the quarter.
Shares of ServiceNow have gained 67.6% year to date, significantly outperforming the industry’s 33.9% rally.
Subscription revenues surged 41% (adjusted for constant currency) from the year-ago quarter to $484.3 million. Professional services and other revenues increased 16% (adjusted for constant currency) to $47.6 million.
Total billings surged 36% year over year (adjusted for constant currency and constant billings duration) to $727.1 million. Subscription billings of $678.4 million witnessed 40% year-over-year growth, while Professional services and other billings declined4% to $48.7 million. Growth in each of the segments has been adjusted for constant currency and constant billings duration.
Management stated that the digital transformation that organizations are going through has been aiding growth. ServiceNow’s global presence and strong partnerships are other tailwinds. Notably, per management, each geographical segment that the company caters to outperformed expectations in the fourth quarter.
ServiceNow caters to more than 40% of the Global 2000 (G2K) companies. It closed 41 contracts in the quarter with an annualized contract value (ACV) of more than a million.The company has more than 500 customers, contributing more than $1 billion to the business, this figure increased 43% on a year over year basis.
Notably, Information Technology Service Management (ITSM) was part of 19 out of the top 20 deals struck during the quarter. In the non-ITSM HR segment, CSM and Security Operations products posted strong results.
Customer Service Management won deals worth more than $1 million during the quarter. The company is investing heavily in platform and product services. Management is also positive about the updates related to machine learning which has now been implemented as part of its business process automation platform, Kingston. Moreover, the security operations product line struck its largest deal to date.
Additionally, the company announced the acquisition of SkyGiraffe, a leader in cloud-based workflow. This will help ServiceNow integrate native mobile applications across its product portfolio, which is a positive for the company.
Moreover, Non-GAAP gross margin was 79% while non-GAAP operating margin was 18%.
For first-quarter 2018, Subscription revenues adjusted for constant currency, are forecast between $507 and $512 million, representing 31-32% year-over-year growth.
Non-GAAP subscription billings adjusted for constant currency and constant billings durations are expected grow 25-26% year over year to $600-$604 million.
Non-GAAP operating margin is anticipated to be 16%.
For full-year 2018, subscription revenues are expected to grow 33-34% and be in the range of $2.31-2.33 billion.
Non-GAAP subscription billings are expected to grow 29-30% year over year to $2.74-2.76 billion.
Non-GAAP Subscription gross margin is expected to be 85%, while operating margin and free cash flow margin are expected to be 20% and 27%, respectively.
Zacks Rank and Stocks to Consider
ServiceNow carries a Zacks Rank #4 (Sell)
Some of the better-ranked stocks in the IT services Industry are Fair Isaac (FICO - Free Report) , DXC Technology (DXC - Free Report) , and CDK Global (CDK - Free Report) , all with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Fair Isaac, DXC and CDK have a long-term expected earnings growth rate of 10%, 10.50% and 15%, respectively.
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