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ServiceNow Earnings: Strong Quarter With In-Line Guidance and Increasingly Attractive Valuation

We’ve raised our fair value estimate of ServiceNow stock.

ServiceNow logo on office building.

Key Morningstar Metrics for ServiceNow

What We Thought of ServiceNow’s Earnings

ServiceNow NOW delivered good first-quarter results, including strong profitability and in-line guidance for the next quarter. We’ve modestly raised our fair value estimate to $790 per share from $770, and we see the stock as slightly undervalued.

Trends from last quarter continued, as strong artificial intelligence adoption was once again the key story, with the Pro Plus version seeing strong uptake. Growth in remaining performance obligations was impressive, supporting our midterm growth estimates. The results reinforce our thesis that ServiceNow is leading the charge to automate and simplify processes for enterprise customers.

Revenue strength was impressive and continues to shine within our enterprise software coverage. Total revenue grew 24.2% year over year as reported to $2.6 billion, which was ahead of our model and driven by strong early renewals. The currency tailwind from last quarter diminished to around only 50 basis points this quarter. Subscription revenue of $2.52 billion grew 24.7% year over year as reported, which was approximately 50 basis points better than the high end of guidance.

Strength was driven by solid results across the board, including segments, products, and geographies. Management called out the public sector and telecom, media, and technology as strong again while noting that macroeconomic conditions have not improved and the sales process remains elongated.

Profitability stood out again, supporting our long-term outlook for continued margin expansion beyond management’s unchanged target of 29% for 2024. Non-GAAP operating margin was 30.4%, compared with 26.3% last year and guidance of 29.0%, driven by spending discipline and revenue upside, as it was in the past several quarters.

ServiceNow Stock vs. Morningstar Fair Value Estimate

Source: Morningstar Direct.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Dan Romanoff

Senior Equity Analyst
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Dan Romanoff, CPA, is a senior equity research analyst on the technology, media, and telecommunications team for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers software.

Before Joining Morningstar in 2019, Romanoff spent 12 years in buy-side equity research covering the technology and telecommunications sectors, most recently at Holland Capital Management. Prior to that, he spent five years in sell-side equity research as an associate analyst at UBS and a senior analyst at Credit Suisse covering various areas within technology, including hardware, software, and semiconductors. Romanoff also has worked as an auditor and in valuation services for major public accounting firms.

Romanoff holds a bachelor’s degree in accountancy and a Master of Business Administration in finance, both from the University of Illinois at Urbana-Champaign. He also holds the Certified Public Accountant and Accredited in Business Valuation designations.

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