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Enterprise workflow software maker ServiceNow (NYSE:NOW) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 22.2% year on year to $2.63 billion. It made a non-GAAP profit of $3.13 per share, improving from its profit of $2.37 per share in the same quarter last year.
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ServiceNow (NOW) Q2 CY2024 Highlights:
- Revenue: $2.63 billion vs analyst estimates of $2.61 billion (small beat)
- Remaining performance obligations (RPO, proxy for future revenue): $18.6 billion vs analyst estimates of $17.6 billion (5.7% beat)
- Adjusted Operating Income: $720 million vs analyst estimates of $656.4 million (9.7% beat)
- EPS (non-GAAP): $3.13 vs analyst estimates of $2.84 (10.1% beat)
- Subscription Revenue Guidance for Q3 CY2024 is $2.66 billion at the midpoint, below analyst estimates of $2.76 billion
- The company raised subscription revenue guidance for the full year of $10.58 billion at the midpoint (in line)
- The company slightly raised operating margin guidance for the full year of 29.5% at the midpoint
- Gross Margin (GAAP): 79%, up from 78.1% in the same quarter last year
- Free Cash Flow of $358 million, down 70.3% from the previous quarter
- Customers: 1,988 customers paying more than $1m annually
- Market Capitalization: $157.2 billion
Founded by Fred Luddy, who wrote the code for the company's initial prototype on a flight from San Francisco to London, ServiceNow (NYSE:NOW) offers a software-as-a-service platform that helps companies become more efficient by allowing them to automate workflows across IT, HR, and customer service.
Automation SoftwareThe whole purpose of software is to automate tasks to increase productivity. Today, innovative new software techniques, often involving AI and machine learning, are finally allowing automation that has graduated from simple one- or two-step workflows to more complex processes integral to enterprises. The result is surging demand for modern automation software.
Sales GrowthAs you can see below, ServiceNow's revenue growth has been strong over the last three years, growing from $1.41 billion in Q2 2021 to $2.63 billion this quarter.
This quarter, ServiceNow's quarterly revenue was once again up a very solid 22.2% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $24 million in Q2 compared to $166 million in Q1 CY2024. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.
Looking ahead, analysts covering the company were expecting sales to grow 20.1% over the next 12 months before the earnings results announcement.
Large Customers Growth This quarter, ServiceNow reported 1,988 enterprise customers paying more than $1m annually, an increase of 55 from the previous quarter. That's quite a bit more contract wins than last quarter and about the same as what we've seen in past quarters, demonstrating that the business has the sales momentum required to drive continued growth. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is running smoothly.
Key Takeaways from ServiceNow's Q2 Results We were impressed by how significantly ServiceNow beat on the RPO (remaining performance obligations, a proxy for future revenues) line. Improvement in new large contract wins this quarter was another plus. Adjusted operating income beat by a meaningful amount, and the company slightly raised its full year guidance for subscription revenue and operating margin. Overall, we think this was a strong quarter that should satisfy shareholders. The stock traded up 5.3% to $770 immediately following the results.
