ServiceNow: The Cloud Specialist Continues Rapid Growth

Last Updated: 5. November 2023By

Despite some disappointments, the majority of companies are able to exceed analyst expectations with their quarterly reports. Investors in ServiceNow have come to expect strong numbers. Nevertheless, the stock of the cloud specialist can still increase.

Growth-strong cloud profiteer The US cloud company offers its (corporate) customers an internet-based unified platform for controlling, monitoring and optimizing their IT infrastructure. This enables companies to automate a large part of their routine tasks in this area and work more efficiently.

In this area, the company even succeeds in gaining market shares against much larger competitors such as IBM, HP and SAP. For years the company has been growing at growth rates of 25% or even 30% per year. The company is led by former SAP CEO Bill McDermott.

Successful third quarter ServiceNow has been a safe bet for quarterly reports for years. The company regularly exceeds the expectations of analysts, often quite significantly. This also succeeded with the recently published figures for the third quarter:

The cloud software specialist reported a revenue increase of almost 25% to $2.29 billion, compared to the $2.26 billion expected in advance. This accelerated the revenue growth compared to the previous quarters (Q2: +23%, Q1: +21%). Net profit was tripled to $242 million. The adjusted profit of $2.92 per share was 36 cents above the analyst forecast.

Big customers are becoming increasingly generous In addition to new customer business, the expansion of revenue with existing customers is the driving growth factor. In the third quarter, ServiceNow won four more major customers, who pay ServiceNow an average of $20 million per year each for its services. This brings the total to 49. In addition, the company benefits from customer loyalty: over 98% of customers renew their contracts.

Outlook for the full year raised The management is also optimistic for the current fourth quarter and has slightly raised its revenue forecast for the full year. For 2023, revenues are expected to be in the range of $8.635 billion to $8.640 billion, previously it was $8.58 billion to $8.60 billion.

The long-term forecast is also optimistic: by 2026, subscription revenues are expected to reach $16 billion.

AI partnerships with Nvidia and Microsoft ServiceNow also wants to benefit from the AI book. The company’s software offers numerous AI tools that enable customers to optimize their IT processes.

ServiceNow has closed a much-noticed cooperation with Nvidia to further promote AI capabilities. In May, another cooperation with a giant of the industry was announced: ServiceNow and Microsoft want to develop new AI tools together.

Stock not a bargain ServiceNow remains a growth guarantor. This quality is reflected in the valuation: based on the forecasts for the coming year, the company is valued at 11 times revenue and 47 times earnings. This is ambitious and can only be justified if the company continues to treat investors with strong quarterly reports.