ServiceNow (NOW, $582.29) will report Q2 results after the close on Wednesday, July 28. Wall Street expects EPS of $1.21 on revenue of $1.36 billion (growth of 27%). The Street-high revenue estimate is $1.38 billion.
ServiceNow’s Q2 subscription revenue guidance range of $1.29 billion to $1.295 billion represents growth of 27% to 28%. Subscription billings are expected to be up 23%. The Current RPO outlook calls for growth of 30%.
Since the release of Q1 results in late April, ServiceNow shares are up 4.5%. However, the stock initially sold off as much as 19.5%, hitting a low of $448.27 in the middle of May. The shares have rebounded 30% from that low, but remain below the all-time high of $598.37 reached in early February.
Expectations were elevated headed into the Q1 results. Ahead of the report, the stock had run up nearly 22% from the late March low. While the company delivered above-consensus numbers, the March quarter was a little noisy in terms of revenue recognition and foreign exchange. Also, Q2 guidance didn’t offer the expected uplift.
In Q1, ServiceNow reported EPS of $1.52, 18 cents above the consensus estimate, on revenue of $1.36 billion (up 30% year over year) versus the consensus of $1.34 billion. Subscription billings gained 29% to $1.365 billion, above the high end of the guidance range. Subscription revenue of $1.293 billion came in slightly above the upper end of the outlook. Current RPO of $4.4 billion rose 33%, beating the growth guide by 100 basis points.
For large enterprises going through their digital transformations, ServiceNow has proven to be a trusted strategic partner, offering solutions to handle IT, customer and employee workflows. ServiceNow’s total customer base of about 6,900 includes 80% of the Fortune 500. In Q1, the number of customers with annual contract value (ACV) of more than $1 million reached 1,146, up 23% year over year. The number of $5 million+ ACV customers rose by more than 50%.
On the Q1 earnings call, management was upbeat about ServiceNow’s near-term prospects, pointing out that the deal pipeline of new business was the strongest in company history. Also, new pipeline is being generated at a rapid pace, suggesting ServiceNow could deliver upside to estimates in the back half of 2021. It’s interesting that the company is generally seeing greater 2H seasonality, with more billings now being pushed into the final quarter of each year.
The Now Platform business is gaining traction, representing 20% of net new ACV in Q1 versus 15% in the previous quarter. Creator workflows were included in 19 of the quarter’s top 20 deals. Also, the international business in Q1 was especially strong, with the EMEA region performing particularly well, closing one of its largest deals ever. The APJ region closed two of the top 3 platform deals.
At the end of Q1, ServiceNow’s total RPO stood at $8.8 billion, up 34% year over year. On its current growth path (with some gradual deceleration baked in), ServiceNow will exceed total revenue of $10 billion in 2024.
While new logo wins will continue to be a key part of the ServiceNow story, deepening relationships with existing customers will be the more important growth driver going forward. BMO Capital agrees, saying ServiceNow will be able to sustain growth in its core IT service management market, while leveraging its installed base for up-sell opportunities across the product portfolio. It’s notable that 17 of the top 20 deals in Q1 included three or more products.
On the technology front, ServiceNow hasn't been standing still. In March, the company announced the acquisition of Intellibot, a provider of robotic process automation (RPA) solutions. Intellibot will extend ServiceNow’s core workflow capabilities by helping customers automate repetitive tasks. ServiceNow will build Intellibot’s capabilities natively into the Now Platform to help customers improve productivity.