ServiceNow (NOW) to Report Q2 Earnings: Is a Beat in Store?

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ServiceNow, Inc.NOW is scheduled to report second-quarter 2018 results on Jul 25. The company has surpassed the Zacks Consensus Estimate in three of the trailing four quarters while coming in line in the remaining one, recording an average positive surprise of 20.03%.

In the first quarter of fiscal 2018, earnings of 56 cents per share outpaced the Zacks Consensus Estimate by 19 cents. The figure soared 80.6% from the year-ago quarter.

Moreover, revenues increased 37.4% year over year to $589.2 million, beating the Zacks Consensus Estimate of $573 million.

We believe robust adoption witnessed by company's expanding range of application based products will drive top-line growth in the to-be-reported quarter. This is reflected in the share price performance.

Notably, shares of ServiceNow have gained 46.5% year to date, significantly outperforming the industry 's rally of 18.6%.

Guidance & Estimates

For second-quarter 2018, non-GAAP subscription revenues adjusted for constant currency are forecast between $548 and $553 million, representing 36-37% year-over-year growth.

Moreover, non-GAAP subscription billings adjusted for constant currency and constant billings durations are expected grow 28-29% year over year to $584-$588 million.

The Zacks Consensus Estimate for revenues is pegged at $619.7 million and translates to year-over-year growth of 31.38%.

Moreover, the Zacks Consensus Estimate for earnings is pegged at 43 cents per share, exhibiting a surge of 95.45% from the year-ago quarter.

Deal Wins: Key Catalyst

The company is well poised to benefit from shifting focus to adoption of its platform and tools by public and big private companies over Global 2000 ("G2K") companies. Per the last reported quarter, ServiceNow added 12 G2K companies. The company closed 21 contracts in the quarter with an annualized contract value ("ACV") of more than a million.

ServiceNow had more than 536 customers, contributing more than $1 billion to the business, increasing 43% on a year-over-year basis. Moreover, the company had 52 customers, generating more than $5 million a year, reflecting growth of a whopping 108% on a year-over-year basis.

Information Technology Service Management ("ITSM") was part of 20 out of the top 21 deals struck in the last quarter.

New deal wins remain a driving factor. In the non-ITSM HR segment, three new deal wins in CSM products and six new deal wins of HR Service Delivery, individually aided ServiceNow garner $1 million of new ACV. The company continues to invest heavily in platform and emerging product services.

The new deal wins are anticipated to boost the top line in the second quarter.

Other Factors Likely to Influence Q2 Results

The company continues to focusonupdates related to machine learning ("ML") which have been implemented as part of its business process automation platform, Kingston.

In fact, ServiceNow recently acquired Parlo, an Artificial Intelligence ("AI") driven workforce solution. Parlo's natural language understanding ("NLU") engine capabilities are expected to bolster the AI capabilities of its Now Platform and other related products.

Moreover, ServiceNow introduced "Virtual Agent", a new conversational bot technology developed to enhance customer and employee experiences. The virtual assistant aids users to resolve conversational requests in real-time. With the buyout of Parlo, the company plans to strengthen capabilities of its virtual agents further by inducting more NLU into the system.

The company's growing influence with its ServiceNow Governance, Risk, and Compliance ("GRC") offering is also a positive.Further, the company's global presence and strong partnerships are other tailwinds.

We believe that company's efforts in automated AI related developments and aiding clientele with digitization are expected to positively impact the company's results in to-be reported quarter. These factors are likely to bolster customer base going ahead.

ServiceNow, Inc. Price and EPS Surprise

ServiceNow, Inc. Price and EPS Surprise | ServiceNow, Inc. Quote

What the Zacks Model Unveils

Per the Zacks model, a company with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP has good chances of beating estimates.

The Sell-rated stocks (4 or 5) are best avoided, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

ServiceNow has a Zacks Rank #3 and an Earnings ESP of +8.13%, which makes us reasonably confident about a possible earnings surprise.

Other Stocks to Consider

Here are some other stocks from the broader technology sector, you may want to consider as our proven model shows that these too have the right combination of elements to post an earnings beat this quarter.

Advanced Micro Devices AMD has an Earnings ESP of +1.19% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Wix.com Ltd. WIX and PayPal Holdings PYPL have an Earnings ESP of +16.28% and +0.44%, respectively. Both the stocks carry a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: PYPL , NOW , WIX , AMD

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