Shares of enterprise workflow software maker ServiceNow (NYSE:NOW) jumped 5.08% in the morning session after the company reported an impressive "beat and raise" quarter. Third quarter revenue beat analysts' expectations slightly, but two important leading indicators of revenue growth--RPO and cRPO (total and current remaining performance obligations) beat more handily. There was also a significant improvement in new large contract wins. Notably, the Federal vertical recorded "the best net new ACV quarter ever." 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. Given the strong performance, management reiterated the goals provided during the May 2023 Analyst Day for 2024 and 2026. Overall, it was an impressive quarter.
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What is the market telling us:
ServiceNow's shares are quite volatile and over the last year have had 9 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was five months ago, when the company gained 5.23% on the news that the company announced its first-ever share buyback program during its investor day session. The program enabled the purchase of up to $1.5 billion in shares of common stock. Management added that "given the current macro environment and our strong cash flow generation, we believe that using a portion of our free cash flow to manage dilution is a strategic use of capital. This program reflects our conviction in the trajectory of our business and our commitment to driving exceptional shareholder value."
ServiceNow is up 46.9% since the beginning of the year, and at $567.99 per share it is trading close to its 52-week high of $605.94 from September 2023. Investors who bought $1,000 worth of ServiceNow's shares 5 years ago would now be looking at an investment worth $3,390.
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