ServiceNow stock gains as company gains strength through macro headwinds (NYSE:NOW)

Service Today (NYSE: NOW) share obtained 14% Thursday morning as the cloud-computing software company beat analyst estimates on its third-quarter earnings.

Late Wednesday, ServiceNow (NOW) reported adjusted earnings of $1.96 per share on revenue of $1.83B. grew 21.2% Y/Y but fell short of estimates.

Subscription revenues of $1.74B topped the high end of the company’s own guidance, growing 28.5% Y/Y in constant currency. The current RPO is ~$5.87B, representing 25% Y/Y constant currency growth, a 150 basis point compared to the company’s FX-adjusted guidance.

Driven by top line beat and operating efficiencies, operating margin of 26% came in 1 point above the company’s own guidance. The firm ended the period with $5.5B in cash and investments.

However, ServiceNow (NOW) revised its 2022 subscription revenue guidance to $6.865B-$6.87B from a previous range of $6.915B-$6.925B amid FX headwinds. For Q4, it expects subscription revenues between $1.834B and $1.839B, representing 26% to 27% Y/Y growth on a constant currency basis, excluding the 600 basis point FX headwind.

The company reiterated prior FY22 operating margin guidance of 25%, while simultaneously absorbing an incremental 1% headwind from FX.

Analysts seemed impressed with the results, with Morgan Stanley praising the management tone of the spending environment, a better-than-expected Q3 cRPO growth, large deal metrics and a record quarter for federal business.

“NOW shares are positioned to perform more durably going forward,” Morgan Stanley said, adding, “A strong focus on Automation businesses and a record Federal quarter combined to yield a solid Q3 print and better than feared Q4 guidance While macro concerns may linger, we continue to see a solid 25%+ FCF growth profile in the NOW medium-term, providing an attractive risk/reward at 19X EV/CY24 FCF. “

Mizuho reiterated its Buy rating on the stock, saying: “We continue to believe that NOW is well positioned for high growth over the next several years, fueled in part by robust demand for flow automation of employment, strong cross-sell opportunities, and greater penetration of new markets.”

Read the transcript of NOW’s earnings call here

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