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Why Shares of ServiceNow Rose 43.5% in the First Half of 2020

By Billy Duberstein - Jul 7, 2020 at 2:22PM

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The enterprise software giant delivered solid earnings amid the pandemic.

What happened

Shares of cloud enterprise software company ServiceNow (NOW 1.41%) rose 43.5% in the first half of 2020, according to data from S&P Global Market Intelligence. The cloud IT company rose along with many enterprise software stocks, as investors piled into stocks of companies less likely to be interrupted by COVID-19. In fact, companies that help enterprises digitize their operations could even reap a benefit from the pandemic.

Combined with a solid first-quarter earnings report and better-than-feared guidance, ServiceNow shares logged a terrific first-half performance.

Two young workers in casual clothes look at a desktop in an office.

Image source: Getty Images.

So what

In the first quarter, ServiceNow logged 34% revenue growth and earnings per share of $0.24, with both figures beating expectations. Despite the pandemic hitting the U.S. in earnest toward the end of March, ServiceNow still forecast a solid 29% to 30% subscription growth rate for the second quarter. The first-quarter results and guidance were enough of a relief for several analysts to raise their price targets in the wake of the earnings release, leading to a big jump in shares that continued to the end of June.

ServiceNow's NOW platform helps organizations run smoothly and efficiently, from IT and devOps to human resources, and customer service and employee apps. As such, it's a fairly mission-critical piece of software unlikely to be "turned off" when a business gets in a cash crunch. In fact, many customers may be expanding their use of digital tools to help with remote work applications, so the pandemic could potentially be a long-term positive for ServiceNow.

Now what

ServiceNow will report earnings toward the end of July, as one of the first technology companies to report for the June quarter. It will be interesting to see how the ongoing pandemic is affecting enterprise IT amid the lingering pandemic, as there is now quite a lot of optimism baked into shares. Investors should keep an ear out as to whether the pandemic is causing a slowdown in new deployments, or whether there's a demand increase as clients feel the need to rapidly digitize. These crosscurrents inform discussions around these high-flying software stocks today.

Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends ServiceNow, Inc. The Motley Fool has a disclosure policy.

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