ServiceNow (NYSE:NOW) Reports Q4 In Line With Expectations, Contract Wins Accelerate

Kayode Omotosho /
2023/01/25 4:18 pm EST

Enterprise workflow software maker ServiceNow (NYSE:NOW) reported results in line with analyst expectations in Q4 FY2022 quarter, with revenue up 20.1% year on year to $1.94 billion. ServiceNow made a GAAP profit of $150 million, improving on its profit of $26 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) Q4 FY2022 Highlights:

  • Revenue: $1.94 billion vs analyst estimates of $1.94 billion (inline)
  • EPS (non-GAAP): $2.28 vs analyst estimates of $2.02 (12.6% beat)
  • Subscription revenue guidance for Q1 2023 is $1.99 billion at the midpoint
  • Management's subscription revenue guidance for upcoming financial year 2023 is $8.47 billion at the midpoint
  • Free cash flow of $1.01 billion, up from $103 million in previous quarter
  • Customers: 1,637 customers paying more than $1m annually
  • Gross Margin (GAAP): 78.6%, up from 76.8% same quarter last year

“ServiceNow continues to perform as a beyond expectations company,” said ServiceNow Chairman 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 two years, growing from quarterly revenue of $1.25 billion in Q4 FY2020, to $1.94 billion.

ServiceNow Total Revenue

Even though ServiceNow fell short of revenue estimates, its quarterly revenue growth was still up a very solid 20.1% year on year. On top of that, revenue increased $109 million quarter on quarter, a very strong improvement on the $79 million increase in Q3 2022, which shows re-acceleration of growth, and is great to see.

For the upcoming financial year management expects subscription revenue to be $8.47 billion at the midpoint.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. 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 1,637 enterprise customers paying more than $1m annually, an increase of 107 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 Q4 Results

Sporting a market capitalization of $89.3 billion, more than $4.28 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.

We were very impressed how strongly ServiceNow accelerated the rate of new contract wins this quarter. That feature of these results really stood out as a positive. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. But investors might have been expecting more and the company is down 4.68% on the results and currently trades at $427.5 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.