ServiceNow (NYSE:NOW) Beats Q1 Sales Targets, Gross Margin Improves

Radek Strnad /
2022/04/27 4:25 pm EDT

Enterprise workflow software maker ServiceNow (NYSE:NOW) reported Q1 FY2022 results that beat analyst expectations, with revenue up 26.6% year on year to $1.72 billion. ServiceNow made a GAAP profit of $75 million, down on its profit of $82 million, in the same quarter last year.

Is now the time to buy ServiceNow? Access our full analysis of the earnings results here, it's free.

ServiceNow (NOW) Q1 FY2022 Highlights:

  • Revenue: $1.72 billion vs analyst estimates of $1.69 billion (1.34% beat)
  • EPS (non-GAAP): $1.73 vs analyst estimates of $1.70 (1.66% beat)
  • Subscription revenue guidance for Q2 2022 is $1.67 billion at the midpoint
  • The company provided subscription revenue guidance for the full year of $7.03 billion at the midpoint
  • Free cash flow of $770 million, roughly flat from previous quarter
  • Customers: 1,401 customers paying more than $1m annually
  • Gross Margin (GAAP): 78.5%, in line with same quarter last year

“ServiceNow delivered another outstanding performance that beat expectations across the board,” said ServiceNow President and CEO Bill McDermott.

Founded by Fred Luddy who wrote the code for the initial prototype on a single flight from San Francisco to London, ServiceNow (NYSE:NOW) offers software as a service platform that helps companies become more efficient by allowing them to automate workflows across IT, HR and Customer Service.

The whole purpose of software is to automate tasks to increase productivity. Today, innovative new software techniques, often involving AI and machine learning, are finally allowing automation that has graduated from simple one- or two-step workflows to more complex processes integral to enterprises. The result is surging demand for modern automation software.

Sales Growth

As you can see below, ServiceNow's revenue growth has been strong over the last year, growing from quarterly revenue of $1.36 billion, to $1.72 billion.

ServiceNow Total Revenue

This quarter, ServiceNow's quarterly revenue was once again up a very solid 26.6% year on year. On top of that, revenue increased $108 million quarter on quarter, a solid improvement on the $102 million increase in Q4 2021. Happily, that's a slight acceleration of growth.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 25.4% over the next twelve months.

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Large Customers Growth

You can see below that at the end of the quarter ServiceNow reported 1,401 enterprise customers paying more than $1m annually, an increase of 42 on last quarter. That is a bit less contract wins than last quarter and also quite a bit below what we have typically seen over the past couple of quarters, suggesting that the sales momentum with large customers is slowing down.

ServiceNow customers paying more than $1m annually

Key Takeaways from ServiceNow's Q1 Results

Sporting a market capitalization of $91.4 billion, more than $4.01 billion in cash and with positive free cash flow over the last twelve months, we're confident that ServiceNow has the resources it needs to pursue a high growth business strategy.

It was good to see ServiceNow improve their gross margin this quarter. And we were also glad to see good revenue growth. On the other hand, it was unfortunate to see the slowdown in new contract wins. Overall, this quarter's results were decent. The company is up 4.4% on the results and currently trades at $486.8 per share.

Should you invest in ServiceNow right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.