ServiceNow, a leading workflow-management software company, has reported better-than-expected fourth-quarter results, along with impressive guidance for the first quarter and full year of 2024, exceeding Street estimates.
Artificial Intelligence Boosts Performance
Attributing part of their success to the integration of artificial intelligence software into their core offerings, ServiceNow emphasizes that generative AI has injected new energy into their already high-performing engine. CEO Bill McDermott describes this achievement as a breakthrough moment for the company.
Impressive Fourth-Quarter Figures
ServiceNow has surpassed both its own guidance and Street estimates across all metrics for the December quarter. Subscription revenue reached $2.365 billion, reflecting a 27% increase from the previous year and surpassing their own forecast of $2.32 billion. The total revenue stood at $2.437 billion, showing a 26% growth, exceeding the consensus estimate of $2.402 billion.
Furthermore, ServiceNow’s adjusted profit on a fully diluted basis was $3.11 per share, surpassing FactSet’s Street consensus of $2.78 per share. The non-GAAP operating margin exceeded expectations at 29%, compared to the company’s forecast of 27.5%. Additionally, current remaining performance obligations were $8.6 billion, representing a 24% increase, surpassing the initial forecast by three percentage points.
Optimistic Outlook for the First Quarter
Looking ahead to the first quarter, ServiceNow expects subscription revenue to range between $2.510 billion and $2.515 billion, a predicted growth of 24% to 24.5%. This estimate exceeds the Street consensus of $2.461 billion. The company also anticipates a 20% increase in current remaining performance obligations and a non-GAAP operating margin of 29%.
ServiceNow’s strong results and favorable guidance demonstrate its ongoing commitment to innovation and growth, cementing its position as a leader in the industry.
ServiceNow Projects Strong Subscription Revenues for 2024
ServiceNow, a leading company in the software industry, is projecting impressive subscription revenues for the year 2024. The company estimates that its revenues will be between $10.555 billion and $10.575 billion, representing a growth of 21.5% to 22%. These figures outperform the Street consensus of $10.474 billion.
Moreover, ServiceNow anticipates a non-GAAP operating margin of 29%, surpassing the consensus estimate of 25.6%. The company also expects subscription gross margins of 84.5%, which is three points higher than the Street consensus. Additionally, ServiceNow aims to achieve a free cash flow margin of 31%, in line with current estimates.
In an interview, McDermott, a representative from ServiceNow, expressed his satisfaction with the company’s performance in the previous quarter and throughout the year. He credited the success to their efforts in incorporating artificial intelligence (AI) features into their software. McDermott stated that the introduction of AI has resulted in the highest net new contract contribution compared to any other product they have launched.
Furthermore, ServiceNow has implemented 15 distinct generative AI use cases within its own operations. Leveraging their own software, the company has witnessed a significant increase in productivity, achieving a remarkable 40% gain. Additionally, they have experienced a 52% improvement in the speed at which they develop new applications.
According to McDermott, there is immense potential for AI-related products and services in the technology industry. He cites a recent survey conducted by EY, which indicated that all 1,200 CEOs surveyed expressed intentions to invest in AI. Moreover, over 70% of the CEOs mentioned they would either secure additional financing or reallocate resources to enhance their AI capabilities.
McDermott is confident that price sensitivity will not be an issue, as the undeniable productivity of AI will lead to significant cost savings. He believes that AI has the power to revolutionize the industry and that the potential market for gen AI-related products and services will amount to a cumulative expenditure of $3 trillion by 2027.
The positive outlook for ServiceNow is reflected in its stock performance, with shares showing an almost 9% increase year-to-date and an impressive 73% growth over the past 12 months.