By Senad Karaahmetovic
Shares of ServiceNow Inc (NYSE:NOW) are up almost 13% in pre-open trading on Thursday after the software developer delivered a solid beat for its third quarter.
ServiceNow delivered an adjusted EPS of $1.96 on revenue of $1.93 billion, better than analyst expectations of EPS of $1.85 on revenue of $1.85 billion. Subscription revenue rose 22% year-over-year to $1.74 billion. The adjusted gross margin was reported at 82%, lower than the 82.2% consensus.
For this quarter, ServiceNow expects subscription revenue to come in between $1.83 billion and $1.84 billion, worse than the $1.93 billion expected. On a full-year basis, ServiceNow sees subscription revenue between $6.865 billion and $6.870 billion, again below the Bloomberg-compiled consensus of $6.97 billion.
MoffettNathanson analysts upgraded NOW stock to Outperform after the results proved to be a “welcome change after the disappointing results from Microsoft (NASDAQ:MSFT).”
“We believe management did a very good job over the last quarter adjusting the go-to-market execution in terms of pipeline management, and that delivered better than expected results for bookings and a good outlook. The tone is very positive for the remainder of the year and even 2023, and we expect shares to start outperforming,” they said.
Morgan Stanley analysts said NOW delivered a “solid print and better than feared guidance.” They cut the price target to $520 from $540 per share.
“While macro concerns may linger, we continue to see a durable 25%+ FCF growth profile at NOW medium-term, framing an attractive risk/reward at 19X EV/CY24 FCF,” they said in a note.
BofA analysts cut the price target on NOW shares as they went to $525 from the prior $540 a share.
“We are impressed by better-than-expected backlog growth (as previewed) in a quarter where sales cycles remained lengthy. Q3 results point to solid execution and an elevated value proposition behind ServiceNow’s automation suite to achieve productivity gains across IT, customer and employee workflows,” they added.