ServiceNow delivers results, guidance beat; Seen as 'one of the best compounding stories in software'

ServiceNow (NYSE: NOW) reported fourth-quarter results and guidance that exceeded analyst expectations.

Shares rose 0.9% in pre-market Thursday on the news.

Adjusted earnings per share (EPS) were $3.11, surpassing the estimated $2.78, while adjusted revenue reached $2.40 billion compared to the estimated $2.40 billion.

Subscription revenue amounted to $2.37 billion, surpassing the estimated $2.32 billion, and representing a 27% annual increase.

The company said it achieved an adjusted gross profit of $2.01 billion, exceeding the estimated $1.94 billion, with an adjusted gross margin of 82% compared to the consensus of 80.6%.

“ServiceNow closed out the year with another outstanding quarter,” said ServiceNow Chairman and CEO Bill McDermott.

“Generative AI is injecting new fuel into our already high-performing engine. ServiceNow’s intelligent platform for end-to-end digital transformation is driving massive leaps in productivity and explosive growth. This is a breakthrough moment.”

Looking forward, the first-quarter forecast for subscription revenue is expected to be between $2.51 billion and $2.52 billion. Analysts were looking for $2.46 billion.

For the year, ServiceNow projects a subscription revenue of $10.56 billion to $10.58 billion, better than the expected $10.46 billion.

"We believe the strong print should buoy shares even after the recent outperformance," Jefferies analyst Samad Samana said in a note.

Evercore ISI analyst Krik Materne raised the price target by $50 to $850 per share.

"ServiceNow delivered a ‘beat and bracket’ as expected and with the shares up ~40% since F3Q results, seeing the stock take a bit of a breather at current levels despite the strong F4Q results should not come as a surprise," he said in a note.

"In our view, the combination of a stabilizing macro and momentum around Pro+ should have a positive impact on our estimates over the FY and NOW remains one of the best compounding stories in software for long-term investors."

By Senad Karaahmetovic

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