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Why ServiceNow Stock Popped Today

By Jeremy Bowman – Apr 30, 2020 at 12:33PM

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Shares of the enterprise cloud computing company gained on a strong earnings report.

What happened

Shares of ServiceNow (NOW -2.05%), the enterprise cloud specialist, were surging after the company delivered better-than-expected results in its first-quarter earnings report and only trimmed its guidance modestly for the year, a sign of confidence in the face of the COVID-19 pandemic.

The stock was up 9.8% as of 11:01 a.m. EDT.

A digital cloud image

Image source: Getty Images.

So what

ServiceNow continued to see strong growth in the first quarter, with subscription revenue up 34% to $995 million and overall revenue increasing 32.6% to $1.05 billion, which topped estimates of $1.02 billion. 

Customers with annual contract value of more than $1 million increased 30% in the quarter to 933, and ServiceNow closed 37 new deals with ACV over $1 million, a 48% increase from the year-ago quarter. Adjusted earnings per share jumped from $0.67 to $1.05, ahead of expectations of $0.95, showing profit margins expanded as well.

Management touted the strength of its recurring revenue model during uncertain times as nearly all of its revenue comes from subscriptions, and CEO Bill McDermott saw his company as playing a valuable role for its customers during the COVID-19 pandemic. Said McDermott:

This pandemic has allowed us to engage our customers in new ways, enabling them to focus on their most critical workflows. Businesses are splitting apart old value chains and reassembling them in end‑to‑end, mobile‑first experiences on the Now Platform. Our Q1 results are a direct reflection of ServiceNow's unique position as the workflow platform to create great employee and customer experiences  -- even in these challenging conditions.

Now what

In its outlook, management acknowledged that many of its customers were operating under "very challenging circumstances," but it still expected solid growth in the second quarter, forecasting subscription revenue growth of 27% to 28%, but slower billings growth of 18% to 20%.

For the full year, the company expects revenue growth of 27%, down from a prior forecast of 30%, but that is still strong considering the broader economic impact of the coronavirus. Cloud stocks have held up well during the pandemic, and ServiceNow's performance and guidance show why, as enterprises will continue to rely on these key providers even in a recessionary climate.

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

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