Digital workflow and automation specialist ServiceNow (NOW -1.61%)reported third-quarter earnings on Wednesday, Oct. 23, that topped analyst estimates on both top and bottom lines.
ServiceNow posted subscription revenue of $2.72 billion, up 23% year over year. ServiceNow reported a GAAP income from operations of $418 million, which was up 81% from Q3 2023, and adjusted operating margins rose to 31%.
This quarter showcased ServiceNow's resilience and strategic positioning amid a competitive landscape, buoyed by its integration of advanced artificial intelligence (AI) solutions.
| Metric | Q3 2024 | Analysts' Expectation | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| Subscription revenue | $2.72 billion | $2.66 billion | $2.22 billion | 22.5% |
| Total revenue | $2.8 billion | $2.75 billion | $2.29 billion | 22% |
| Income from operations | $418 million | N/A | $231 million | 81% |
| Adj. operating margin | 31% | 29.5% | 30% | 1 pps |
| Adj. EPS | $3.76 | $3.45 | $2.95 | 27% |
Source: ServiceNow. Note: Analysts consensus estimates provided by FactSet. YOY = Year over year.
About ServiceNow
ServiceNow is known for its cloud computing platform that helps enterprises automate operations, manage digital workflows, and innovate efficiently. The Now Platform is its flagship offering, enabling businesses to capitalize on embedded AI and machine learning technologies to streamline processes and enhance productivity. ServiceNow's strategic focus has been on advancing AI integration and forming partnerships that expand capabilities and market reach. Key to ServiceNow's strategy has been its commitment to AI and machine learning initiatives, with the Platform Xanadu release marking a substantial leap in capabilities.
Quarterly Highlights
While ServiceNow's revenue metrics were posting double-digit percentage gains year over year, its gross profit for subscription services hit $2.22 billion, with a GAAP margin of 82%, underlining effective cost control.
Among notable business successes, ServiceNow closed 15 substantial transactions exceeding $5 million in annual contract value (ACV) -- a 50% increase year over year. Its customer base of those with over $1 million in ACV rose by 14%, emphasizing successful client acquisition and retention.
Strategic partnerships were a focal point, including significant collaborations with Nvidia (NVDA -2.09%), Siemens (SIE 0.33%), and Zoom Video Communications (ZM -1.90%), which bolster the integration of cutting-edge AI solutions. These alliances enhance ServiceNow’s ability to deliver transformational value across industries, reinforcing its product offerings.
Challenges remain, notably the competitive landscape and client concentration risks. The company operates in a market that demands rapid adaptation to AI dynamics, with potential macroeconomic headwinds that could reshape technology adoption frameworks.
Outlook
ServiceNow’s raised guidance for full-year 2024 subscription revenue to $10.655 billion to $10.66 billion (up from $10.575 billion to $10.585 billion), which reflects a boost in confidence. It also indicates strong momentum, powered by the Now Platform and its AI offerings. The non-GAAP operating margin outlook of 29.5% underscores its efficiency initiatives.
Management continues to focus on AI development and strategic partnerships to fuel growth. Investors should monitor how ServiceNow capitalizes on its technological advances and partnerships, as well as how it navigates potential industry challenges. As ServiceNow strengthens its innovative capabilities, its ambition to expand its market share remains a key focus.
