ServiceNow Earnings Beat, Guidance Disappoints Ahead Of Analyst Day

ServiceNow reports earnings that beat views, while revenue edged by consensus estimates. NOW stock dipped.

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Jun 8, 2023 • 2 min read

ServiceNow (NOW), a software company, reported earnings for the first quarter that were significantly higher than expectations. Revenue was slightly below consensus estimates. The NOW stock fell on Thursday after investors were disappointed by the full-year guidance for 2023.

ServiceNow's earnings, which were reported after the close of Wednesday, rose 37% compared to the same period last year.

The Santa Clara-based enterprise software company reported a 22% increase in revenue to $2.096 Billion.

Analysts at NOW expected the company would report earnings of $1.98 per share on revenues of $2.09billion.

ServiceNow also reported that subscription revenues rose by 24%, to $2.02 Billion, exceeding the consensus estimate, which was $1.996 Billion.

ServiceNow's current remaining performance obligations (CRPO) for the first quarter were above expectations. Bookings for CRPOs were $7.01 billion in the first quarter, up by 23% compared to a year ago. Software maker forecasted a 21% increase to $6.884 Billion.

The CRPO is an aggregate of the deferred revenue backlog as well as orders. It can be used to measure sales growth.

ServiceNow's June quarter subscription revenue was predicted to be in the range of $2.045 - $2.04 billion, compared with estimates of $2.03 bn.

Investors may criticize management's decision in a recent report to lower the outlook for 2023 subscription revenue by less than what was achieved in Q1. This is according to Jefferies analyst Samad Samana. "We applaud management for embracing conservatism against an uncertain backdrop."

Today, NOW shares rose 0.7% in the afternoon stock market trading to reach 457.11. ServiceNow's stock has a new buy-point of 485.68 for the cup with handle.

BMO Capital Markets analyst Keith Bachman stated in a report that: "While investors might be disappointed with the guide, we believe management took the correct approach by not raising the guidance, especially in light of this backdrop." Bachman continued: "For instance, despite beating the quarterly subscription revenue guidance, management is increasing subscription revenue 2023 by $25 million at midpoint, and (currency rates) are providing $21 million of incremental help."

Prior to the ServiceNow earnings announcement, NOW shares had gained 14% by 2023.

The self-service portal allows employees to access administrative tools and workflows.

ServiceNow's core business has been expanded to include software for human resource management, customer service management, and security.

ServiceNow will host an analyst's day on May 16 where it is expected to discuss long term business trends.

Derrick Wood, TD Cowen's analyst, said in a recent report that the next catalyst will be an analyst day in January, when it is expected to announce new generative AI investment in partnership with OpenAI/Microsoft.

Reinhardt Krause is on Twitter @URL. Follow him for the latest updates on 5G wireless technology, artificial intelligence and cybersecurity.