ServiceNow (NOW) Up 9.5% Since Last Earnings Report: Can It Continue?

Core Viewpoint - ServiceNow reported strong third-quarter earnings, with adjusted earnings per share of $3.72, exceeding estimates by 7.51% and showing a year-over-year increase of 27.4% [2] - Revenue for the quarter reached $2.797 billion, surpassing consensus estimates by 2.04% and reflecting a year-over-year growth of 22.2% [2] Financial Performance - Subscription revenues grew by 23% year-over-year, beating management's guidance by 200 basis points [3] - Professional services and other revenues increased by 13.9% year-over-year [4] - The current remaining performance obligations (cRPO) stood at $9.18 billion, up 23.5% year-over-year [4] - Non-GAAP gross margin for the third quarter was 82.6%, an increase of 60 basis points year-over-year [5] - Non-GAAP operating margin expanded to 31.2%, exceeding management's guidance by 150 basis points [6] Client Growth and Market Position - ServiceNow had 2,020 customers with over $1 million in annual contract value (ACV), marking a 14% year-over-year growth [7] - The company secured 15 deals exceeding $5 million in net new ACV during the quarter [7] - Generative AI deals gained traction, with 44 new Now Assist customers spending over $1 million in ACV [8] Strategic Partnerships - ServiceNow is leveraging AI and machine learning to enhance its solutions, with a strong partner base including Visa, Microsoft, and NVIDIA [9][10] - The Zero Copy partnership with Snowflake aims to connect enterprise-wide data for solving critical problems [11] Liquidity and Cash Flow - As of September 30, 2024, ServiceNow had cash and cash equivalents of $5.295 billion [12] - Free cash flow for the quarter was $471 million, up from $359 million in the previous quarter [12] Future Guidance - For 2024, ServiceNow raised its subscription revenue guidance to $10.655-$10.66 billion, indicating a 23% increase from 2023 [13] - Projected subscription revenues for the fourth quarter of 2024 are between $2.875 billion and $2.88 billion, suggesting a year-over-year growth of 21.5-22% [14] - cRPO is expected to grow by 21.5% year-over-year [15] Industry Context - ServiceNow operates within the Zacks Computers - IT Services industry, which has seen mixed performance among peers [21]