ServiceNow (NOW) to Report Q2 Earnings: What's in the Cards?

ServiceNow, Inc. NOW is set to report second-quarter 2020 results on Jul 29.

The Zacks Consensus Estimate for revenues is currently pegged at $1.05 billion, which indicates growth of 25.6% from the figure reported in the year-ago quarter.

The Zacks Consensus Estimate for second-quarter earnings has been steady at $1.02 cents in the past 30 days, which suggests a surge of 43.7% from the year-ago quarter’s reported figure.

Notably, the company has a trailing four-quarter positive earnings surprise of 10.2%, on average.

ServiceNow, Inc. Price and EPS Surprise

ServiceNow, Inc. Price and EPS Surprise

ServiceNow, Inc. price-eps-surprise | ServiceNow, Inc. Quote

Factors Likely to Have Impacted Q2

ServiceNow’s  second-quarter performance is expected to have benefited from the solid traction for the company’s IT service management (ITSM) and IT operations management (ITOM) solutions stemming from rapid digital transformation taking place across all industries due to coronavirus-led remote work wave.

Moreover, robust adoption of the company’s customer service management (CSM) solutions is likely to have boosted the top line in the to-be-reported quarter. Markedly, ServiceNow witnessed one of its largest CSM deals ever with Japan-based Murata Manufacturing in the first quarter. This trend is likely to have continued in the second quarter as customer support departments of companies are being flooded with calls and queries due to the pandemic.    

ServiceNow expects second-quarter subscription revenues between $1.008 million and $1.013 billion. Notably, the Zacks Consensus Estimate for subscription revenues is currently pegged at $997 million, which indicates an increase of 27.7% over the year-ago quarter’s reported figure.

Further, the company’s platform has been gaining momentum among U.S. government agencies which holds promise for second-quarter results. Notably, emergency response apps developed on the Now platform were adopted by the states of Washington, Los Angeles and San Francisco in the previous quarter to combat the growing threat of the pandemic.

Growing clout of the company's products instill optimism in the stock. Notably, shares of the company have returned 52.6% in the year-to-date period compared with the industry’s rally of 16.4%.

ServiceNow’s HR solutions have also been growing in popularity due to the increased need for efficient employee management amid changing work environments. This is likely to have had a positive impact on revenues in the to-be-reported quarter.

Moreover, the company’s partnerships with Deloitte and Accenture ACN are anticipated to have aided in acquiring more customers. This factor is likely to have contributed to ServiceNow’s second-quarter revenues.

However, coronavirus induced uncertainties prevailing in the market is likely to have limited growth. Also, higher expenditure on product innovation and acquisitions, is likely to have exerted pressure on margins during the quarter under review.

Key Development in Q2

ServiceNow inked an agreement to acquire Belgium-based configuration data management startup –– Sweagle.

The deal will enable ServiceNow to help customers identify and avoid application and infrastructure misconfigurations, which will prevent halts in production and accelerate their digital transformation process. (Read More: ServiceNow to Acquire Sweagle to Enhance Now Platform)

What Our Model Says

Our proven model doesn’t conclusively predict an earnings beat for ServiceNow this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

ServiceNow has an Earnings ESP of 0.00% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks you may consider as our proven model shows that these have the right mix of elements to beat estimates this time:
Synaptics Incorporated SYNA has an Earnings ESP of +10.60% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Microchip Technology Incorporated MCHP has an Earnings ESP of +3.09% and a Zacks Rank of 1.

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With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.

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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.

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