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Shares of ServiceNow (NYSE: NOW ) rose nearly 13% in pre-open trading Thursday after the software developer delivered a solid beat for its third quarter.
ServiceNow delivered an adjusted EPS of $1.96 on revenue of $1.93 billion, better than the analyst expectation of EPS of $1.85 on revenue of $1.85 billion. Subscription revenue increased 22% year-over-year to $1.74 billion. Adjusted gross margin was reported at 82%, lower than the 82.2% consensus.
For this quarter, ServiceNow expects subscription revenue to come in between $1.83 billion and $1.84 billion, worse than the $1.93 billion expected. For the full year, ServiceNow sees subscription revenue between $6.865 billion and $6.870 billion, again below the Bloomberg consensus of $6.97 billion.
MoffettNathanson analyst Sterling Auty upgraded NOW stock to Outperform after calling the results a “welcome change after disappointing results from Microsoft.”
“We believe that management has done a very good job in the last quarter in adjusting the go-to-market execution in terms of pipeline management, and that has delivered better-than-expected results for bookings and good outlook. The tone is very positive for the rest of the year and even into 2023, and we expect shares to start outperforming,” Auty said.
Morgan Stanley analyst Keith Weiss said NOW delivered “solid print and better than feared guidance.” Weiss cut the price target to $520 from $540 per share.
“While macro concerns may linger, we continue to see a strong 25%+ FCF growth profile in the NOW medium-term, framing an attractive risk/reward at 19X EV/CY24 FCF,” it said Weiss said in a note.
BofA analyst Brad Sills cut his price target on NOW shares to $525 from a previous $540 per share.
“We were impressed with better-than-expected backlog growth (as previewed) in a quarter where sales cycles remained long. Q3 results point to solid execution and a high value of proposition behind ServiceNow’s automation suite to achieve productivity gains across IT, customer and employee workflows,” added Sills.
By Senad Karaahmetovic