ServiceNow (NOW) third quarter revenue and revenue exceed expectations-October 28, 2020

ServiceNow (just now – Free Report) reported quarterly earnings of $1.21 per share, exceeding the Zacks consensus estimate of $1.03 per share. By comparison, earnings per share a year ago were $0.99. These figures have been adjusted for non-recurring items.

The quarterly report indicated a surplus of 17.48%. A quarter ago, the software company was expected to automate the company’s technical operations, and its actual profit was $1.23 and earnings per share were $1.02, an unexpected 20.59%.

In the past four quarters, the company exceeded earnings per share expectations four times.

ServiceNow, which belongs to the Zacks computer-IT service industry, announced that its revenue for the quarter ended September 2020 was $1.15 billion, which is 3.75% higher than the Zacks consensus estimate. In comparison, revenue for the same period last year was US$888.3 million. The company has exceeded market expectations for revenue four times in the past four quarters.

Based on the recently released figures and expectations for future earnings, the sustainability of the stock’s immediate price movements will mainly depend on management’s comments on earnings calls.

Since the beginning of the year, ServiceNow stock has risen about 77%, while the S&P 500 index has risen 5%.

What’s next for ServiceNow?

Although ServiceNow has outperformed the market this year, the question that investors think of is: What is the next step for the stock?

There is no simple answer to this key question, but a reliable measure that can help investors solve this problem is the company’s profit prospects. This includes not only the current consensus earnings expectations for the next quarter, but also recent changes in these expectations.

Empirical research shows that there is a strong correlation between recent stock trends and the revised earnings estimates. Investors can track such revisions themselves, or they can rely on time-tested rating tools (such as Zacks Rank), which have an impressive track record of harnessing the power of earnings estimate revisions.

Prior to the release of this financial report, ServiceNow’s estimated revision trend is favorable. Although the magnitude and direction of the estimated revisions may change with the company’s just released earnings report, the Zacks rank second (buy) in the current state of the stock. Therefore, the stock is expected to outperform the market in the near future. You can view the full list of today’s Zacks #1 ranking (Strong Buy) stocks here.

What is interesting is how the estimates for the next few quarters and the current fiscal year will change in the coming days. The current consensus earnings per share are expected to be US$113 million in the next quarter, with revenue of US$1.18 billion, and US$4.45 in the current fiscal year, with revenue of US$4.41 billion.

Investors should be aware of the fact that the prospects of the industry may also have a significant impact on the performance of stocks. In the Zacks industry rankings, computer-IT services currently rank in the top 46% of more than 250 Zacks industries. Our research shows that among the industries with the highest Zacks ranking, the top 50% of industries are 2 to 1 times higher than the bottom 50%.