ServiceNow (NYSE:NOW) Q4: Beats On Revenue, Contract Wins Accelerate

Adam Hejl /
2024/01/24 4:16 pm EST

Enterprise workflow software maker ServiceNow (NYSE:NOW) beat analysts' expectations in Q4 FY2023, with revenue up 25.6% year on year to $2.44 billion. It made a non-GAAP profit of $3.11 per share, improving from its profit of $2.29 per share in the same quarter last year.

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ServiceNow (NOW) Q4 FY2023 Highlights:

  • Market Capitalization: $154.1 billion
  • Revenue: $2.44 billion vs analyst estimates of $2.40 billion (1.5% beat)
  • EPS (non-GAAP): $3.11 vs analyst estimates of $2.78 (11.9% beat)
  • Subscription Revenue Guidance for Q1 2024 is $2.51 billion at the midpoint, below analyst estimates of $2.54 billion
  • Management's subscription revenue guidance for the upcoming financial year 2024 is $10.57 billion at the midpoint, implying 21.7% growth (slightly above expectations of $10.50 billion)
  • RPO (Remaining Performance Obligations) and cRPO (current) guidance for Q1 2024 also exceeded expectations, as did operating margin guidance
  • Free Cash Flow of $1.34 billion, up from $175 million in the previous quarter
  • Customers: 1,897 customers paying more than $1m annually
  • Gross Margin (GAAP): 78.8%, in line with the same quarter last year

“ServiceNow closed out the year with another outstanding quarter,” said ServiceNow Chairman and CEO Bill McDermott.

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

Automation Software

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 two years, growing from $1.61 billion in Q4 FY2021 to $2.44 billion this quarter.

ServiceNow Total Revenue

This quarter, ServiceNow's quarterly revenue was once again up a very solid 25.6% year on year. On top of that, its revenue increased $149 million quarter on quarter, a solid improvement from the $138 million increase in Q3 2023. Thankfully, that's a slight re-acceleration of growth.

For the upcoming financial year, management expects subscription revenue to be $10.57 billion at the midpoint, implying 21.7% forecasted year-on-year growth.

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Large Customers Growth

This quarter, ServiceNow reported 1,897 enterprise customers paying more than $1m annually, an increase of 108 from the previous quarter. That's quite a bit more contract wins than last quarter and quite a bit above what we've typically observed in past quarters, demonstrating that the business 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 Q4 Results

Revenue beat slightly but two important leading indicators of revenue growth--RPO and cRPO (total and current remaining performance obligations) beat more handily. We were also impressed by ServiceNow's significant improvement in new large contract wins this quarter. On profitability, the company exceeded expectations for operating income. Finally, the company raised its full year outlook for subscription revenue and slightly raised its full year outlook for operating margins while reiterating gross and free cash flow margins. Overall, we think this was good quarter that should please many shareholders. The stock is up 5.92% after reporting and currently trades at $562.11 per share.

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