It has been about a month since the last earnings report for ServiceNow (NOW - Free Report) . Shares have added about 7.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is ServiceNow due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
ServiceNow Beats Q1 Earnings Estimates, Trims View
ServiceNow reported first-quarter 2020 adjusted earnings of $1.05 per share, which increased 9.4% year over year.
Revenues of $1.046 billion beat the consensus mark by 2.7% and increased 33% year over year. Geographically, North America, Europe, Middle East and Africa (EMEA), and APAC & Other contributed 67%, 24%, and 9% to revenues, respectively.
Moreover, non-GAAP revenues (excluding impact of foreign exchange) of $1.059 million surged 34% from the year-ago quarter’s figures.
Non-GAAP Subscription revenues (adjusted for constant currency) rallied 36% from the year-ago quarter’s figure to $1.006 billion.
Non-GAAP Professional services and other revenues increased 7% (adjusted for constant currency) from the year-ago quarter’s level to $53 million.
Total billings rose 30% on a year-over-year basis (adjusted for constant currency and constant billings duration) to $1.114 billion.
Non-GAAP adjusted subscription billings of $1.065 billion surged 32% year over year. Professional services and other billings increased 2% to $49 million.
ServiceNow maintained consistent renewal rate of 97% during the reported quarter. Fortune 500 companies’ clientele expansion continues to grow and came in at almost 80% at the end of the first quarter.
In the first quarter, non-GAAP gross margin was 83%, up 300 basis points (bps) on a year-over-year basis.
Total operating expenses came in at $773.6 million during the quarter, up 25.1% from the year-ago quarter’s reported figure.
The company’s non-GAAP operating margin was 24%, up 500 bps on a year-over-year basis.
Balance Sheet & Cash Flow
As of Mar 31, 2020, ServiceNow had cash and cash equivalents and short-term investments of $1.858 billion compared with $1.691 billion as of Dec 31, 2019.
During the reported quarter, cash from operations came in at $491.6 million compared with the prior-quarter figure of $421.2 million
The company also generated free cash flow of $408.6 million compared with $342.2 million reported in the prior quarter. Further, non-GAAP free cash flow margin was 39%, up 100 bps on a year-over-year basis.
For second-quarter 2020, non-GAAP adjusted subscription revenues are anticipated between $1.008 billion and $1.013 billion, which indicates growth of 29-30% from the year-ago quarter’s figure.
Non-GAAP adjusted subscription billings are projected in the range of $976-$996 million, which suggests an increase of 20-22% from the year-ago reported figure.
Due to uncertainties related to the coronavirus pandemic, the company has slashed its guidance for full year 2020.
For 2020, non-GAAP adjusted subscription revenues are now anticipated between $4.167 billion and $4.197 billion, which indicates growth of 23 from the year-ago quarter’s reported figure. The prior non-GAAP adjusted subscription revenue guidance was between $4.21 billion and $4.23 billion.
Non-GAAP adjusted subscription billings are projected in the range of $4.664-$4.724 billion, which suggests a rise of 23-25% from the year-ago quarter’s reported figure. The previous guidance was in the range of $4.807-$4.827 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 123.46% due to these changes.
Currently, ServiceNow has a great 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise ServiceNow has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.