ServiceNow NOW is scheduled to release its third-quarter 2024 results on July 24.
The Zacks Consensus Estimate for second-quarter revenues is currently pegged at $2.74 billion, indicating 19.78% growth from the figure reported in the year-ago quarter.
The consensus mark for earnings is pegged at $3.46 per share, indicating growth of 18.49% from the figure reported in the year-ago quarter. The earnings figure has remained unchanged over the past 30 days.
ServiceNow’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 11.21%.
ServiceNow, Inc. Price and EPS Surprise
ServiceNow, Inc. price-eps-surprise | ServiceNow, Inc. Quote
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Let’s see how things are shaping up prior to this announcement.
Factors to Note
ServiceNow expects third-quarter 2024 subscription revenues between $2.66 billion and $2.67 billion, suggesting an improvement in the range of 20-20.5% year over year on a GAAP basis. At constant currency, subscription revenues are expected to grow in the 20.5% range.
The Zacks Consensus Estimate for third-quarter 2024 subscription revenues is pegged at $2.663 billion, indicating 20.2% year-over-year growth.
ServiceNow has been benefiting from strong expansion in clientele as enterprises undergoing digital transformation continue to adopt its workflow solutions. NOW ended the second quarter of 2024 with 1988 total customers with more than $1 million in annual contract value (ACV), which represents 15% year-over-year growth in customers.
ServiceNow had eight deals greater than $14 million in net new ACV and four deals of more than $10 million. It closed 88 deals greater than $1 million net new ACV. The number of customers contributing more than $20 million or more grew 40% year over year.
In the second quarter of 2024, Generative AI deals continued to gain traction with net new ACV for Now Assist, which doubled sequentially and was part of 11 deals worth more than $1 million in the reported quarter.
The momentum is expected to have continued in the third quarter of 2024.
NOW Shares Outperform Sector, Industry
NOW shares have returned 30.5%, outperforming the Zacks Computer & Technology sector’s appreciation of 19.7% and the Zacks Computers – IT Services industry’s return of 12.5%.
Year-to-Date Performance Chart
Image Source: Zacks Investment Research
However, ServiceNow stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.
In terms of the forward 12-month P/S ratio, NOW is trading at 14.97X, higher than the sector’s 6.21X and the industry’s 11.1X.
Price/Earnings (P/E) Ratio
Image Source: Zacks Investment Research
NOW Benefits From a Strong Portfolio
ServiceNow has been benefiting from strong expansion in clientele as enterprises undergoing digital transformation continue to adopt its workflow solutions. NOW’s growing GenAI prowess and strong partner base are driving prospects.
It is extensively leveraging AI and machine learning technologies to boost the potency of its solutions. NOW’s latest update, Xanadu, offers AI-powered, purpose-built industry solutions for domains, including telecom, media, and technology, financial services and the public sector.
Through its Washington, D.C. platform update, ServiceNow introduced a host of cutting-edge features aimed at streamlining operations, enhancing productivity and advancing the adoption of GenAI across various sectors.
The Xanadu update adds new AI capabilities to boost customer agility, enhance productivity and improve employee experiences. It expands the GenAI portfolio to enterprise functions, including Security, as well as Sourcing & Procurement Operations.
NOW plans to integrate Agentic AI into the ServiceNow platform and unlock 24/7 productivity at a massive scale. This service will be available this November for Customer Service Management AI Agents and IT Service Management AI Agents. It is expected to reduce the time taken to resolve an issue and make live agents more productive.
A strong partner base that includes the likes of Visa, Microsoft MSFT, NVIDIA NVDA, International Business Machines IBM, Genesys, Fujitsu, Equinix, Boomi and Infosys is strengthening NOW’s AI capabilities.
Conclusion
ServiceNow’s robust GenAI portfolio and strong partner base are expected to drive its subscription revenues in the long haul. The Growth Style Score of A is hard to ignore for investors despite a stretched valuation.
ServiceNow currently has a Zacks Rank #2 (Buy), suggesting that prior to the third quarter of 2024, it is the right time to accumulate the stocks. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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