ServiceNow (NYSE:NOW) beats third-quarter revenue targets, but contract wins slow

ServiceNow (NYSE:NOW), maker of enterprise workflow software, reported third-quarter 2024 results that beat market revenue expectations. Revenue rose 22.2% year over year to $2.80 billion. Non-GAAP earnings of $3.72 per share were also 7.8% above analyst consensus estimates.

Is now the time to buy ServiceNow? Find out in our full research report.

• Revenue: $2.80 billion vs. analyst estimates of $2.75 billion (beat 1.9%)

• Adjusted EPS: $3.72 vs. analyst estimates of $3.45 (beat 7.8%)

• Subscription Revenue Guidelines For the fourth quarter of fiscal 2024, the median is $2.88 billion, slightly above analyst estimates of $2.86 billion

• Gross margin (GAAP): 79.1%, which corresponds to the same quarter last year

• Operating margin: 14.9%, an increase from 10.1% in the same quarter last year

• Free cash flow margin: 16.8%, an increase from 13.6% in the previous quarter

• Customers: 2,020 customers pay more than $1 million per year

• Current RPO (remaining performance obligations): $9.36 billion vs. analyst estimates of $9.11 billion (beat 2.7%)

• Market capitalization: $189 billion

“ServiceNow has raised our full-year revenue guidance based on our strong third quarter results, once again exceeding expectations,” said Bill McDermott, Chairman and CEO of ServiceNow.

ServiceNow (NYSE:NOW) was founded by Fred Luddy, who wrote the code for the company's first prototype on a flight from San Francisco to London. It offers a software-as-a-service platform that helps companies become more efficient by automating IT, HR, and customer service workflows.

The entire purpose of software is to automate tasks to increase productivity. Today, innovative new software techniques, often involving AI and machine learning, are finally enabling automation that has moved from simple one- or two-step workflows to more complex, business-integral processes. The result is an increasing need for modern automation software.

Reviewing a company's long-term performance can provide insights into its business quality. Any company can be successful in the short term, but a top-notch company maintains growth for years to come. Fortunately, ServiceNow's revenue grew at a compound annual growth rate of 23.7% over the past three years. This shows that the expansion was successful, a useful starting point for our analysis.

This quarter, ServiceNow reported robust revenue growth of 22.2% year-over-year, beating Wall Street estimates by 1.9% with revenue of $2.80 billion.

Looking ahead, sell-side analysts expect revenue to grow 19.8% over the next 12 months, slowing from the last three years. Some degree of tapering is natural given the size of its revenue base, and we still think its growth trajectory is attractive.

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The customer acquisition cost (CAC) payback period measures the months it takes a company to recoup the money spent on acquiring a new customer. This metric can be used to assess how quickly the company can break even on its sales and marketing investments.

It's relatively expensive for ServiceNow to acquire new customers, as the CAC payback period this quarter was 51.8 months. The company's performance shows that it operates in a competitive market and needs to continue investing to maintain its growth trajectory.

It was encouraging to see ServiceNow narrowly beat analysts' revenue expectations this quarter. Additionally, current RPO (remaining performance obligations), a leading indicator of future revenue, was ahead. Looking ahead, the subscription revenue forecast for the next quarter was positive. Overall, this was a good quarter. However, immediately after the report, shares fell 1.3% to $896.

ServiceNow's earnings report left a lot to be desired. Let's see if this quarter offers an opportunity to buy the stock. When making this decision, you should consider the overall picture of valuation, business qualities, as well as current profits. We cover this in our actionable full research report, which you can read for free here.