ServiceNow (NOW) Q4 Revenues and Revenue Exceed Estimates – January 27, 2022

Service Today (NOW Free Report) reported fourth quarter of 2021 adjusted earnings of $ 1.46 per share, beating the Zacks Consensus Estimate of 2.1% and improving 24.8% year-over-year.

Revenues of $ 1.61 billion exceeded the consensus mark of 0.8% and increased 29.1% year-over-year. After adjusting for forex, revenues of $ 1.63 billion rose 30% annually.

Subscription revenues improved 29% annually to $ 1.52 billion. After adjusting for forex, subscription revenues rose 30% annually to $ 1.54 billion.

Professional services and other revenue increased 38% annually to $ 91 million. After adjusting for forex, professional services and other income rise at the same rate on a year-on-year basis.

ServiceNow is benefiting from the increasing use of its workflows by businesses undergoing digital transformation. The company now has 1,359 total customers with more than $ 1 million in annual contract value, representing 25.3% year-over-year customer growth.

During the reported quarter, ServiceNow closed 135 transactions with more than $ 1 million in net new annual contract value, representing 52% year-over-year growth.

Billing Details

Total charges, on a non-GAAP basis, rose 33% annually to $ 2.53 billion. After adjusting for forex, total charges rose 33% annually to $ 2.55 billion.

Subscription charges of $ 2.42 billion advanced 32% annually. After adjusting for forex, subscription charges were $ 2.43 billion, up 33%.

Professional services and other charges rose 43% to $ 113 million. After adjusting for forex, professional services and other charges rise at the same rate on a year-on-year basis.

Operation Details

In the fourth quarter, the non-GAAP gross margin was 81.1%, contracting 40 basis points (bps) on a year-over-year basis.

A total subscription margin of 85% is contracted at 10 bps annually. Professional services and other gross margin was 15.4% compared to the previous quarter’s figure of 16.7%.

Total operating expenses, on a non-GAAP basis, were $ 942 million in the reported quarter, up 26.8% year-over-year. As a percentage of revenues, operating costs dropped 110 bps on a year-on-year basis.

ServiceNow’s non-GAAP operating margin widened 70 bps on a year-over-year basis to 22.7%.

Balance Sheet and Cash Flow

Beginning Dec. 31, 2021, ServiceNow had cash and cash equivalents, and short -term investments of $ 3.30 billion compared to $ 3.03 billion on Sept. 30, 2021.

In the reported quarter, cash from operations was $ 844 million compared to $ 320 million in the previous quarter.

ServiceNow generated free cash flow of $ 744 million in the quarter, up from $ 228 million reported in the previous quarter.

At the end of the fourth quarter, outstanding performance obligations or RPOs were $ 9.7 billion, up 34% annually.

Guidance

For the first quarter of 2022, non-GAAP subscription revenues are projected to be between $ 1.610 billion and $ 1.615 billion, suggesting a 25% year-over-year improvement.

ServiceNow expects the non -GAAP operating margin to be 25%.

For 2022, ServiceNow expects non-GAAP subscription revenues to be $ 7.020- $ 7.040 billion, suggesting a 26% increase from last year’s reported number.

ServiceNow continues to rely on a non-GAAP gross margin of 86% and a non-GAAP operating margin of 25%. Moreover, the non-GAAP free cash flow margin is expected to be 31%.

Zacks Rank and Stocks to Consider

Currently, ServiceNow holds Zacks Rank #4 (Sell).

ServiceNow shares in the Zacks Computer & Technology sector performed poorly last year. While NOW shares dropped 6.2%, the Computer & Technology sector returned 4.5%.

Littelfuse (LFUS Free Report), NETGEAR (NTGR Free Report) and Mandiant (MNDT Free Reports) are some better ranked stocks that investors in the broader sector can consider. All three stocks have Zacks Rank #1 (Strong Buy). Here you will find the complete list of Zacks #1 Rank stocks today.

Littelfuse shares surpassed the Zacks Computer & Technology sector last year. Littelfuse returned 5.1% compared to the sector’s rise of 4.5%.

LFUS is scheduled to report in the fourth quarter of 2021 on Feb. 1, 2022.

NETGEAR shares did not perform well in the Zacks Computer & Technology sector last year. NETGEAR shares were down 39.9%.

NTGR is scheduled to report fourth quarter 2021 results on Feb. 2.

Mandant shares dropped 31.9% last year.

MNDT is scheduled to report fourth quarter 2021 results on Feb. 8.

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