What's in the Offing for ServiceNow (NOW) in Q4 Earnings?

ServiceNow, Inc . NOW is scheduled to report fourth-quarter 2018 results on Jan 30.

Notably, the company has surpassed the Zacks Consensus Estimate in three of the trailing four quarters and came in line in the remaining one, recording average positive surprise of 19.7%.

In the third quarter, non-GAAP earnings of 68 cents per share outpaced the Zacks Consensus Estimate by 8 cents. Further, the figure soared 78.9% from the year-ago quarter.

Moreover, revenues advanced 36.7% year over year to $673.1 million, beating the Zacks Consensus Estimate of $659.4 million.

We believe robust adoption witnessed by company's expanding range of application based products by government agencies, big private and public companies will drive top-line growth in the to-be-reported quarter.

Guidance & Estimates

For fourth-quarter 2018, management anticipates non-GAAP subscription revenues in the range of $664 million to $669 million, representing year-over-year growth of 33-34%.

The Zacks Consensus Estimate for revenues is pegged at $717.3 million, translating to year-over-year growth of 31.3%.

Moreover, the Zacks Consensus Estimate for earnings is pegged at 64 cents per share, implying a surge of 82.9% from the year-ago quarter.

Let's see how things are shaping up prior to this announcement.

Factors Likely to Influence Q4 Results

Expanding Customer Base & Deal Wins: Key Catalysts

ServiceNow's enterprise customer base exceeded 5,000 at the end of the third quarter.

Further, the company's total number of customers contributing more than $1 million to the business reached 614 in the third quarter. The figure increased 37% on a year-over-year basis.

Moreover, ServiceNow witnessed significant growth in its customer base which contributes above $10 million. There were 11 such customers including four Fed agencies. Notably, the figure was three times more than that of the prior-year quarter.

Additionally, ServiceNow's platform and tools are gaining rapid traction among the Global 2000 ("G2K") companies. Per the las t report ed quarter, the company added 20 new G2K companies. Further, it closed 36 contracts in the third quarter with an annualized contract value ("ACV") of more than a million.

Moreover, ServiceNow is also exploring new end-markets beyond G2K. New deal wins in particular from federal, state and local governments is a positive. In fact, in the third quarter, the company witnessed strong momentum across the government sector with U.S. government accounting for majority of its deals, including four Fed agencies.

The growing influence of its ServiceNow Governance, Risk, and Compliance ("GRC") offering is also a positive. Further, the company's recent notable alliances with IBM IBM , Accenture and NTT Communications are anticipated to aid it in expanding digital transformation initiatives.

Other Notable Factors

ServiceNow's acquisition of FriendlyData, in a bid to add natural language query (NLQ) technology capabilities to its platform, remains a notable development in the quarter under review.

Notably, NLQ technology enables non-technical users to pose questions in simple English and obtain direct answers in real time. NLQ tech will be integrated with Now Platform and assist users to leverage Performance Analytics dashboards.

Recently, the company entered into a partnership with Microsoft MSFT in a bid to offer ServiceNow digital workflows via Azure Government Cloud. It is aimed to facilitate the U.S. Federal customers with digital transformation by deploying ServiceNow's technology via the Microsoft Azure Marketplace.

The aforementioned factors are expected to garner new deals, consequently bolstering customer base. However, the company faces stiff competition from the likes of Oracle and in the non-ITSM market, compelling it to increase spending on sales and marketing, which is likely to limit margin expansion.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP . Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

ServiceNow, Inc. Price and EPS Surprise

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

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

Stock that Warrants a Look

Here is a stock you may consider, as our proven model shows that it has the right combination of elements to post an earnings beat this quarter.

Archer Daniels Midland Company ADM has an Earnings ESP of +2.45% and a Zacks Rank #1. The company is slated to report fourth-quarter 2018 earnings on Feb 5. You can see the complete list of today's Zacks #1 Rank stocks here .

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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.

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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