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ServiceNow (NYSE:NOW) Q3 Sales Beat Estimates


Adam Hejl /
2021/10/27 4:26 pm EDT
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Enterprise workflow software maker ServiceNow (NYSE:NOW) reported Q3 FY2021 results beating Wall St's expectations, with revenue up 31.2% year on year to $1.51 billion. ServiceNow made a GAAP profit of $63 million, improving on its profit of $12.8 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) Q3 FY2021 Highlights:

  • Revenue: $1.51 billion vs analyst estimates of $1.47 billion (2.24% beat)
  • EPS (non-GAAP): $1.55 vs analyst estimates of $1.39 (11.5% beat)
  • Subscription revenue guidance for Q4 2021 is $1.51 billion at the midpoint, below analyst estimates of $1.59 billion
  • Free cash flow of $226 million, down 15.6% from previous quarter
  • Customers: 1,266 customers paying more than $1m annually
  • Gross Margin (GAAP): 76.8%, down from 78.1% same quarter last year

“We reported another significant beat and raise quarter in Q3,” 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.

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 $1.15 billion, to $1.51 billion.

ServiceNow Total Revenue

And unsurprisingly, this was another great quarter for ServiceNow with revenue up an absolutely stunning 31.2% year on year. On top of that, revenue increased $103 million quarter on quarter, a very strong improvement on the $49 million increase in Q2 2021, and a sign of acceleration of growth.

Analysts covering the company are expecting the revenues to grow 25.1% over the next twelve months, although estimates are likely to change post earnings.

There are others doing even better than ServiceNow. 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 1,266 enterprise customers paying more than $1m annually, an increase of 65 on last quarter. That is quite a bit more contract wins than last quarter and quite a bit above what we have typically seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.

ServiceNow customers paying more than $1m annually

Key Takeaways from ServiceNow's Q3 Results

With a market capitalization of $134 billion, more than $3.03 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

It was good to see ServiceNow deliver strong revenue growth this quarter. And we were also glad to see the acceleration in new contract wins. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is down 3.3% on the results and currently trades at $643 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.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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