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ServiceNow (NYSE:NOW) Q2: Beats On Revenue


Adam Hejl /
2021/07/28 4:19 pm EDT
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Enterprise workflow software maker ServiceNow (NYSE:NOW) beat analyst expectations in Q2 FY2021 quarter, with revenue up 31.5% year on year to $1.4 billion. ServiceNow made a GAAP profit of $59 million, improving on its profit of $40.7 million, in the same quarter last year.

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

ServiceNow (NOW) Q2 FY2021 Highlights:

  • Revenue: $1.4 billion vs analyst estimates of $1.35 billion (3.68% beat)
  • EPS (non-GAAP): $1.42 vs analyst estimates of $1.21 (17.5% beat)
  • Subscription revenue guidance for Q3 2021 is $1.4 billion at the midpoint
  • The company provided subscription revenue guidance for the full year of $5.53 billion at the midpoint
  • Free cash flow of $268 million, down 57.2% from previous quarter
  • Customers: 1,201 customers paying more than $1m annually
  • Gross Margin (GAAP): 76.6%, in line with previous quarter

“I’m so proud of our team’s performance, significantly exceeding the high end of our guidance across all metrics, which is reflected in our strong full-year guidance raise,” said Bill McDermott, ServiceNow president and CEO.

Founded in 2004, ServiceNow offers software as a service platform that helps companies become more efficient by allowing them to automate workflows across IT, HR and Customer Service.

As corporations digitize their processes, they build and buy more and more apps and systems that often don’t directly connect with each other. That in effect drives demand for software platforms like ServiceNow, that function as operating systems for the enterprise and are able to tie all the other systems together.

Sales Growth

As you can see below, ServiceNow's revenue growth has been very strong over the last year, growing from quarterly revenue of $1.07 billion, to $1.4 billion.

ServiceNow Total Revenue

And unsurprisingly, this was another great quarter for ServiceNow with revenue up an absolutely stunning 31.5% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $49 million in Q2, compared to $109.6 million in Q1 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 24.2% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

There are others doing even better. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Large Customers Growth

You can see below that at the end of the quarter ServiceNow reported 1,201 enterprise customers paying more than $1m annually, an increase of 55 on last quarter. That's in line with the number of contracts wins we are used to seeing over the last year, suggesting that the company is able to maintain its current sales momentum.

ServiceNow customers paying more than $1m annually

Key Takeaways from ServiceNow's Q2 Results

Sporting a market capitalisation of $114 billion, more than $2.98 billion in cash and with positive operating 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 outperform Wall St’s revenue expectations this quarter. And we were also glad to see good revenue growth. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is down -2.48% on the results and currently trades at $569 per share.

When considering ServiceNow, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. Is now the right time to invest? Are there better opportunities? Get access to our full analysis here, it's free.

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