Why ServiceNow Stock Popped Today

What happened

Service Today (NOW 13.00%) Shares jumped after the cloud software company delivered better-than-expected bottom-line results in its third-quarter earnings report.

As a result, the stock was up 12.7% as of 12:10 pm ET.

What now?

ServiceNow, an enterprise software company that helps businesses create intelligent and automated workflows, said third-quarter revenue rose 21%, or 27.5% in constant currency, to $1.83 billion, which was slightly below estimates at $1.85 billion.

Other key metrics showed the business was also delivering solid growth. Current outstanding performance obligations (cRPO), a proxy for backlog, increased 18%, or 25% in constant currency, to $5.87 billion, and the number of customers with annual contract value of over $10 million grew by 60%. It now has 1,530 customers with an annual contract value of more than $1 million, up 22% from last year.

On the bottom line, adjusted earnings per share rose 26.5% to $1.96, beating estimates of $1.84.

In a statement, CFO Gina Mastantuono said: “The Q3 outperformance is a testament to the critical mission of our platform and the strong execution of the ServiceNow team. We continue to see a robust pipeline and maintain our investments in hiring growth as the opportunity in front of us remains enormous.”

What now

ServiceNow also provided strong guidance for the fourth quarter, calling for subscription revenue of $1.834 billion to $1.839 billion, representing growth of 20% to 21%. It also expects cRPO growth to accelerate to 20%. Those numbers indicate the company isn’t experiencing the kind of macroeconomic headwinds reported by other tech companies.

With the cloud stock down 40% from its peak last year, better-than-expected earnings and a strong outlook were enough to give the stock a double-digit gain. This can be a good entry point for reliable growth stocks.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions and recommends ServiceNow, Inc. The Motley Fool has a disclosure policy.

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