ServiceNow Earnings: Strong Quarter With In-Line Guidance and Increasingly Attractive Valuation
We’ve raised our fair value estimate of ServiceNow stock.
Key Morningstar Metrics for ServiceNow
- Fair Value Estimate: $790.00
- Morningstar Rating: 3 stars
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: High
What We Thought of ServiceNow’s Earnings
ServiceNow NOW delivered good first-quarter results, including strong profitability and in-line guidance for the next quarter. We’ve modestly raised our fair value estimate to $790 per share from $770, and we see the stock as slightly undervalued.
Trends from last quarter continued, as strong artificial intelligence adoption was once again the key story, with the Pro Plus version seeing strong uptake. Growth in remaining performance obligations was impressive, supporting our midterm growth estimates. The results reinforce our thesis that ServiceNow is leading the charge to automate and simplify processes for enterprise customers.
Revenue strength was impressive and continues to shine within our enterprise software coverage. Total revenue grew 24.2% year over year as reported to $2.6 billion, which was ahead of our model and driven by strong early renewals. The currency tailwind from last quarter diminished to around only 50 basis points this quarter. Subscription revenue of $2.52 billion grew 24.7% year over year as reported, which was approximately 50 basis points better than the high end of guidance.
Strength was driven by solid results across the board, including segments, products, and geographies. Management called out the public sector and telecom, media, and technology as strong again while noting that macroeconomic conditions have not improved and the sales process remains elongated.
Profitability stood out again, supporting our long-term outlook for continued margin expansion beyond management’s unchanged target of 29% for 2024. Non-GAAP operating margin was 30.4%, compared with 26.3% last year and guidance of 29.0%, driven by spending discipline and revenue upside, as it was in the past several quarters.
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