Stock Story -
What Happened?
Shares of enterprise workflow software maker ServiceNow (NYSE:NOW) jumped 7% in the morning session after the company reported impressive third-quarter earnings which exceeded analysts' revenue, operating margin, and EPS estimates. Additionally, current RPO (remaining performance obligations), a leading indicator of future revenues also beat consensus estimates. Looking ahead, its subscription revenue guidance for next quarter came in ahead.On the product front, the company continued to add new AI capabilities, following the release of the Now Platform Xanadu which includes custom GenAI solutions across industries. Overall, this was a strong quarter.
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What The Market Is Telling Us
ServiceNow’s shares are not very volatile and have only had 3 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.The biggest move we wrote about over the last year was 3 months ago when the stock gained 14.1% on the news that the company reported an impressive "beat and raise" quarter, which was powered by what management considered "elite-level execution." ServiceNow beat on the RPO (remaining performance obligations, a proxy for future revenues) line. Improvement in new large contract wins was another plus. Adjusted operating income also beat by a meaningful amount, and the company slightly raised its full-year guidance for subscription revenue and operating margin.
Moving on to its AI capabilities, management provided promising insights. NowAssist (AI product) net new ACV doubled quarter-over-quarter and became the fastest-growing new product in the company's history. Notably, the company inked 11 NowAssist deals with $1 million+ ACV in Q2, two of which were over $5 million.
Also, the company noted that Dell would be integrating NowAssist. Alongside similar deals, this could significantly accelerate ServiceNow's reach in the AI automation space.
Overall, this was a strong quarter with the company's improved visibility in its deal pipeline providing strong conviction in its near term forecasts. Alongside its AI momentum, investors have ample reasons to stay positive.
ServiceNow is up 39.6% since the beginning of the year, and at $959.64 per share, has set a new 52-week high. Investors who bought $1,000 worth of ServiceNow’s shares 5 years ago would now be looking at an investment worth $4,034.