Workflow software company ServiceNow Inc. saw. whose stock fell more than 7% in extended trading today after reporting second-quarter earnings that fell short of expectations. The company also lowered its fiscal 2023 guidance, though it insisted it was still on target to hit its goal of making $11 billion in subscription revenue in 2024, and $16 billion in 2026.
ServiceNow reported net income of $20 million for the period. Earnings before certain expenses such as stock compensation, came in at $1.62 per share, ahead of Wall Street’s target of $1.55 per share. Revenue for the period came in at $1.752 billion, up 29% from a year earlier but just below Wall Street’s forecast of $1.762 billion. The company also reported subscription revenue of $1.658 billion, just shy of its own guidance of $1.67 billion and below the Street estimate of $1.667 billion. Despite the shortfall, ServiceNow said that on a constant currency basis its subscription revenue grew 29.5%, just ahead of its own 29% forecast.
The after-hours stock slide erased an impressive gain of just over 6% during the regular trading session.
ServiceNow President and Chief Executive Bill McDermott (pictured) praised the company’s performance, saying it beat expectations on the top and bottom line.
“ServiceNow is the stable platform for a rapidly changing world,” said the CEO. “Our speed of innovation, customer centricity, and consistent execution are proven. While no industry is immune to the current macro environment, no company is better positioned than ServiceNow to help customers transform to this moment.”
ServiceNow is a leading player in the workflow automation software space. Its platform is used by enterprise information technology teams to monitor and manage the services they provide. It also offers administrative and workflow management tools, and in recent times it has expanded into adjacent areas such as human resources, customer service management and IT security. The company has been very successful over the past few years, helping to popularize the workflow concept. It has been clear about its goal of making more than $16 billion in annual revenue by 2026, and reiterated that target again today.
“In the current macro environment, ServiceNow remains a key part of our customers’ digital transformation strategy and we continue to see a very strong pipeline,” said ServiceNow Chief Financial Officer Gina Mastantuono. “We are leaning on our tremendous opportunity with operational rigor as we remain confident of achieving $16 billion-plus in subscription revenue by 2026.”
In an interview with Barron’s today, McDermott asserted that the demand environment for software remains consistent and strong, despite economic problems. Those comments echoed similar sentiments from Microsoft Corp. earlier this week, and McDermott said ServiceNow has been able to maintain its margins and continues to hire new staff. “We’re looking to get big fast,” said the CEO.
McDermott’s optimistic tone comes after he recently triggered a selloff in ServiceNow shares following an interview on CNBC, when he warned of serious macroeconomic headwinds coming to the industry.
“You are at a 41-year high inflation. The dollar is now at its highest level in more than two decades. We have rising interest rates, People are worried about security. You have a war in Europe. So, the mood is not good,” McDermott said on CNBC’s Mad Money on July 11. “You can see the headwind of the dollar today against the well-known technology brands. No one is ahead of the currency at the moment.”
McDermott later clarified his comments were about the state of the technology industry, and not specifically about his own company.
In today’s conference call, ServiceNow executives said the stronger US dollar means its full-year subscription revenue will take a $220 million hit, while remaining performance obligations will suffer by $180 million. The company added that foreign exchange will be a one-point drag on its 2022 operating margin.
With that in mind, ServiceNow revised its full-year forecast for subscription revenue to a range of $6.915 billion to $6.925 billion, from an earlier forecast of $7.025 billion to $7.04 billion. For the current quarter, ServiceNow is looking at subscription revenue of $1.75 billion to $1.755 billion, just below the Wall Street consensus estimate of $1.787 billion.
Photo: World Economic Forum/Flickr
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