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ServiceNow Earnings Beat Street Estimates

ServiceNow reported revenue growth of 20% in its fourth quarter from a year earlier.

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Dreamstime

ServiceNow
posted better-than-expected fourth-quarter financial results on Wednesday. The enterprise workflow software company’s solid performance should help take some of the sting out of Tuesday’s disappointing guidance from
Microsoft
on the outlook for cloud computing.

For the quarter, ServiceNow (ticker: NOW) posted revenue of $1.94 billion, up 20% from a year ago, or 25.5% adjusted for currency, ahead of the company’s guidance range of $1.834 billion to $1.839 billion, but in line with the Street consensus. Subscription revenue was $1.86 billion, up 22%, or 27.5% in constant currency, slightly higher than the Street’s view at $1.84 billion. 

ServiceNow earned $2.28 a share on an adjusted basis in during the quarter, ahead of consensus at $2.02 a share. Under generally accepted accounting principles, the company earned 74 cents a share.

Current remaining performance obligations at quarter end were $6.94 billion, up 22%, or 25.5% adjusted for currency; the company had projected 20% growth, or 26% adjusted for currency.

“ServiceNow continues to perform as a beyond expectations company,” ServiceNow CEO Bill McDermott said in a statement. “Our Q4 surge in new business shows that the secular tailwinds of digitization aren’t going anywhere.”

For the March quarter, ServiceNow is projecting subscription revenue of $1.99 billion to $2 billion, up between 22% and 22.5%, or 25% to 25.5% adjusted for currency. The Street has been projecting $1.95 billion in revenue. The company expects operating margin in the quarter of 24% on an adjusted basis, down from 28% in the December quarter.

For all of 2023, the company is projecting subscription revenue of $8.44 billion to $8.5 billion, ahead of the Street consensus at $8.34 billion. ServiceNow expects operating margin of 26%, with a free cash flow margin of 30%. 

In an interview with Barron’s, McDermott asserted that the company is benefiting from IT buyers “trying to do more with less, digitizing things that people used to do.”

Added McDermott: “if you don’t invest in digital transformation in the short term, you will fall back in the mid-term, and you might not be around in the long term.”

Write to Eric J. Savitz at eric.savitz@barrons.com

Credit: marketwatch.com

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