ServiceNow's Beat And Raise Quarter Tops Even The Most Bullish Expectations

ServiceNow Inc NOW reported strong Q4 2016 results, beating expectations despite currency headwinds. The Q1 and 2017 guidance also came in higher than expected.

4Q Results

ServiceNow reported quarterly revenue of $385.7 million, above the consensus estimate of $379.3 million. This represented 35 percent year-over-year growth, with 37 percent in constant currency terms. Revenues were driven mainly by subscription revenue, which grew 41 percent year-over-year to $350.3 million, versus the consensus expectation of $338.4 million.

The company reported its EPS at $0.24, ahead of the consensus of $0.23. Billings growth reaccelerated in the quarter to $508.2 million, compared to consensus of $477.6 million.

1Q And 2017 Guidance

ServiceNow announced 1Q revenue guidance of $406 million–$411 million, ahead of the consensus expectation of $402.7 million. This guidance included $10 million in currency headwind. 1Q billings guidance came in at $490 million–$495 million, above the consensus expectation of $483.8 million.

For FY 2017, the company guided to revenue of $1.82 billion–$1.85 billion, higher than the consensus expectation of $1.794 billion. The full-year billings guidance came in at $2.165–$2.195 billion, ahead of the consensus expectation of $2.085 billion.

Wunderlich's Takeaways

Wunderlich’s Ryan MacDonald maintains a Buy rating on ServiceNow, while raising the price target from $95 to $107.

“NOW is establishing itself as the ERP of IT, closing a number of deals including three or more products. While the core ITSM [information technology service management] offering continues to drive NOW's business, non-core offerings represented 46 percent of net new ACV [actual cash value] in 4Q as ITOM [information technology operations management] and customer service showed particular strength to close the year,” MacDonald wrote.

MacDonald raised the revenue estimate for FY 2017 from $1.8 billion to $1.835.8 billion. He reduced the EPS estimate for the year from $1.05 to $1.02 to reflect management’s updated margin expectations.

William Blair Takeaways

William Blair’s Justin Furby maintains an Outperform rating on the company. While naming the stock as “a favorite long-term idea,” Furby mentioned that ServiceNow’s newer products seemed to be “firing on all cylinders,” with best-in-class renewal rates, and the company had significant ITSM opportunity ahead.

“We are also bullish on incremental drivers,” Furby commented, naming these as Inspire, continued progress with global partner International Business Machines Corp. IBM and the pending merger between Hewlett Packard Enterprise Co HPE's Enterprise Services segment and Computer Sciences Corporation CSC.

At last check, ServiceNow shares were up 6.77 percent at $92.21.