Enterprise workflow software maker ServiceNow (NYSE:NOW) fell short of analyst expectations in Q2 FY2022 quarter, with revenue up 24.3% year on year to $1.75 billion. ServiceNow made a GAAP profit of $20 million, down on its profit of $59 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) Q2 FY2022 Highlights:
- Revenue: $1.75 billion vs analyst estimates of $1.76 billion (0.63% miss)
- EPS (non-GAAP): $1.62 vs analyst estimates of $1.55 (4.43% beat)
- Subscription revenue guidance for Q3 2022 is $1.75 billion at the midpoint, below analyst estimates of $1.88 billion
- The company provided subscription revenue guidance for the full year of $6.92 billion at the midpoint
- Free cash flow of $287 million, down 62.7% from previous quarter
- Customers: 1,463 customers paying more than $1m annually
- Gross Margin (GAAP): 77.7%, up from 76.6% same quarter last year
"ServiceNow once again beat expectations on the top and bottom line," 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 $1.4 billion, to $1.75 billion.
Even though ServiceNow fell short of revenue estimates, its quarterly revenue growth was still up a very solid 24.3% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $30 million in Q2, compared to $108 million in Q1 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.
Ahead of the earnings results the analysts covering the company were estimating sales to grow 25.3% over the next twelve months.
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 1,463 enterprise customers paying more than $1m annually, an increase of 62 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.
Key Takeaways from ServiceNow's Q2 Results
Sporting a market capitalization of $84.7 billion, more than $3.83 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. And we were also glad to see good revenue growth. On the other hand, it was unfortunate to see that ServiceNow missed analysts' revenue expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. But the market was likely expecting more and the company is down 6.41% on the results and currently trades at $419 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.