In the first half of the year, as the pandemic rapidly changed the way most people in the world handled business, basically every company that provided cloud-based software was gathering. Although the trend of enterprises migrating to the cloud will continue, the names of some of these popular software have been tested by reality because their valuations are getting higher and higher and their profit expectations have become unusually high. Now that we have seen the real impact of the pandemic on the earnings of these companies in the past few quarters, the market has had time to assess which companies are real deals and which companies are not as compelling as investors initially thought.
With its loyal customer base and efficient platform, a cloud-based software as a service application provider stands out in a crowded industry. ServiceNow (NYSE: NOW) After the company announced a strong financial report confirming that it continues to benefit from long-term trends and has room for continued growth, the stock now appears to be one of the better stocks in the information technology field. Let’s take a deeper look at ServiceNow below and discuss some of the reasons why it belongs to your product portfolio.
Innovative enterprise cloud computing solutions
The easiest way to explain ServiceNow’s cloud-based solutions is that they can help companies transform, manage and improve their internal business processes. The cloud-based IT Service Management (ITSM) solution provided by ServiceNow is in great demand because it can greatly improve the way businesses operate. A 2019 survey of chief information officers by Oxford Economics found that digital workflows have improved employee performance and productivity by more than 75%, which is a strong proof that any large business can benefit from ServiceNow’s technology .
The company provides cloud-based services that can automate workflows, enable customers to create service-oriented business applications, and focus on service management such as customer support, human resources, security operations, and other corporate departments. ServiceNow’s customer base includes nearly 80% of Fortune 500 companies, and the company’s contract renewal rate is as high as 98%. This tells us that ServiceNow customers are loyal and will continue to generate recurring revenue for the company over time. There is also the fact that after implementing ServiceNow, it may be expensive for companies to switch to other ITSM platforms, which is another competitive advantage for this company.
Stellar Q3 earnings
Currently, ServiceNow is benefiting from two main long-term trends: the large-scale digital transformation of companies worldwide and the migration to cloud computing. It is worth mentioning that the company’s subscription revenue in the third quarter was $1.09 billion, an increase of 31% year-on-year. ServiceNow also added 1,012 total customers, the new annual net contract value exceeded 1 million US dollars, and the number of customers increased by 25% year-on-year. The great thing about ServiceNow is that it attracts any large enterprise in the world, including large federal organizations. It added some high-profile federal customers during the quarter, including the U.S. Air Force, U.S. Army and Mount Sinai, which led to the third quarter becoming the company’s largest federal quarter.
These results exceeded analysts’ expectations and helped the stock rise 5.71%% in the trading hours after the release. The company’s management team also added guidance for the full year and expects revenue to grow 28%-29% year-on-year. Most importantly, for the company, the third quarter is a very strong period, which should give investors confidence in the sustainable growth of ServiceNow.
Final thoughts
Although ServiceNow’s stock has experienced an epic rise in 2020 and has risen by more than 75% so far this year, there is still a lot of room for upside. In the words of ServiceNow’s CEO Bill McDermott, “COVID is redefining the future of work, accelerating digital transformation, and expanding the need to unify systems, silos, and processes into the overall corporate workflow. ServiceNow is a platform for digital business. “As long as current long-term trends remain unchanged, companies at the forefront of the digital business revolution will flourish.
When you consider ServiceNow’s strong competitive advantages, loyal customer base, sustained revenue growth, and its potential for substantial growth in future profit margins, there is no doubt that it is one of the best cloud software companies it owns. If you are interested in high-growth software names like this, please consider adding stocks in the next pullback.
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