ServiceNow Reports Strong Growth Ahead of Q4 2024 Earnings
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The Zacks Consensus Estimate for ServiceNow’s fourth-quarter revenues stands at $2.95 billion, reflecting a 21.21% increase compared to the same quarter last year.
Similarly, the earnings consensus estimate is at $3.58 per share, marking a 15.11% growth year-over-year. This estimate has remained steady throughout the past month.
ServiceNow, Inc. Price and EPS Surprise
ServiceNow, Inc. price-eps-surprise | ServiceNow, Inc. Quote
ServiceNow has consistently surpassed the Zacks Consensus Estimate for earnings over the past four quarters, with an average surprise of 9.46%.
Let’s explore the upcoming quarter before the earnings call.
Key Considerations Ahead of Q4
For the fourth quarter of 2024, ServiceNow projects subscription revenues to be between $2.875 billion and $2.88 billion, which suggests a year-over-year growth of approximately 21.5-22% on a GAAP basis. In constant currency, subscription revenues are anticipated to rise by about 20.5%.
The Zacks Consensus Estimate for subscription revenues for this quarter is set at $2.88 billion, indicating a 21.7% increase year-over-year.
Notably, ServiceNow has been expanding its customer base. As of the end of Q3 2024, the company reported having 2,020 clients with annual contract values (ACV) exceeding $1 million.
During Q3 2024, ServiceNow secured 15 deals worth over $5 million in net new ACV and six agreements exceeding $10 million. In total, 96 deals surpassed $1 million in net new ACV, with the number of customers contributing over $20 million increasing nearly 40% year-over-year.
The third quarter also saw growth in generative AI (Gen AI) deals. ServiceNow onboarded 44 new Now Assist customers, each spending more than $1 million in ACV, including two spending over $10 million. The company has managed to raise prices for its Gen AI offerings by about 30%.
This positive trend is expected to carry into the fourth quarter of 2024.
ServiceNow Outperforms Market Trends
Over the last 12 months, ServiceNow shares have gained 47.9%, outperforming the Zacks Computer & Technology sector, which grew by 28.6%, and the Zacks Computers – IT Services industry, which returned 12.1%.
NOW Stock’s Performance
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Currently, ServiceNow shares are in a bullish phase, trading above both the 50-day and 200-day moving averages.
Stable Technical Performance
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Nonetheless, ServiceNow’s stock is currently perceived as expensive, with a Value Score of F indicating a potentially inflated valuation at this time.
In terms of forward 12-month price-to-sales (P/S) ratio, NOW is trading at 17.49X, significantly higher than the sector average of 7.17X and the industry average of 11.61X.
Forward Price/Sales Ratio
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ServiceNow’s Innovative Portfolio Drives Growth
ServiceNow focuses extensively on AI and machine learning to enhance its product offerings. The company’s expanding Gen AI capabilities are particularly notable, as its total addressable market is projected to reach $275 billion by 2026.
Innovation is a key driver of growth. ServiceNow’s recent update, known as Xanadu, delivers AI-powered, industry-specific solutions for sectors such as telecommunications, media, technology, financial services, and public services.
This update incorporates the latest AI features aimed at improving customer adaptability, boosting productivity, and enhancing employee experiences. The Gen AI portfolio will also extend into enterprise functions, including Security and Sourcing & Procurement Operations.
In November, NOW plans to introduce Agentic AI into its platform to enable 24/7 productivity on a large scale. This addition is expected to expedite issue resolution and increase the efficiency of live agents for Customer Service Management and IT Service Management.
Additionally, ServiceNow is enhancing its platform with over 150 new Gen AI features while ensuring responsible AI practices through AI governance innovations.
Strategic Partnerships Enhance ServiceNow’s Position
Amazon AMZN, Microsoft MSFT, and NVIDIA NVDA are significant partners of ServiceNow. The company has also formed alliances with several other firms including Five9, Visa, Snowflake, Zoom, Siemens, Rimini Street, IBM, Genesys, Fujitsu, Equinix, Boomi, and Infosys, which are expected to support its growth in market share.
Recently, ServiceNow and Amazon Web Services announced an expanded strategic collaboration to facilitate AI-driven business transformation by linking Amazon Bedrock models to ServiceNow, enhancing the development and deployment of Gen AI solutions.
Additionally, they strengthened their partnership with Microsoft to enhance front-office operations through a collaboration involving Microsoft Copilot and ServiceNow AI agents. The Now Assist integration with Microsoft Copilot for Microsoft 365 is available in conjunction with the Xanadu update.
ServiceNow is also working with NVIDIA to develop specific use cases for AI agents utilizing NVIDIA NIM Agent Blueprints.
In Summary
ServiceNow’s strong Gen AI portfolio, along with a robust partner network, is likely to propel its subscription revenues in the coming years. Its Growth Style Score of B makes it an attractive option for investors, despite concerns of overvaluation.
Currently rated as a Zacks Rank #2 (Buy), ServiceNow appears to be a promising investment ahead of its fourth-quarter earnings report for 2024.
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