Workflow management software provider ServiceNow (NYSE: NOW) smashed analysts’ third-quarter earnings estimates despite a challenging macro environment. The company’s adjusted earnings per share rose 26.5% year-over-year to $1.96, beating analysts’ estimates of $1.85.
ServiceNow stock jumped 13.1% in Wednesday’s extended trading session in reaction to the earnings increases.
The company’s Q3 revenue rose 21.1% year-over-year to $1.83 billion, with subscription revenue up 22%. Continued digital transformation fueled revenue growth in the quarter. However, Q3 revenue fell short of analysts’ estimates of $1.85 billion.
In Q3, ServiceNow had 1,530 customers contributing more than $1 million in annual contract value (ACV), reflecting year-over-year growth of 22%. Furthermore, the number of customers paying more than $10 million in ACV increased by 60%. At the end of Q3, current outstanding performance obligations (cRPO), which indicates contract revenue to be recognized as revenue over the next 12 months, grew 18% to $5.87 billion.
During the Q3 earnings call, CEO William McDermott said, “Our US federal business had its best quarter in Q3. We saw strength across industries and business segments.”
Looking forward, ServiceNow expects Q4 subscription revenue of $1.834 billion to $1.839 billion. Analysts had expected Q4 subscription revenue of $1.87 billion. The company lowered its full-year subscription revenue guidance to a range of $6.865 billion to $6.870 billion, compared to prior guidance of $6.915 billion to $6.925 billion.
Meanwhile, ServiceNow announced that CEO McDermott will succeed founder Fred Luddy as Chairman of the board. Luddy will remain a member of the ServiceNow board.
What is the Target Price for Today’s Service?
ServiceNow earned the Street’s consensus rating of Strong Buy based on 25 Buys and two holds. The average NOW stock price prediction of $528.80 indicates 44.3% upside potential. Shares have fallen 43.6% so far this year.
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