ServiceNow Inc: Cloud Stock Trounces Market, Up 55% in 2020

ServiceNow Stock Soars Ahead of Q2 Results

ServiceNow Inc (NYSE:NOW), the leading digital workflow company, has seen its share price soar in 2020 as more and more businesses shift to the cloud in the COVID-19 economy.

NOW stock is up 55% year-to-date and up 84% since the middle of March. The strong gains go beyond the coronavirus pandemic; the company’s share price has soared more than 150% since the start of 2019.

Any way you look at it, ServiceNow stock has been trouncing the broader market. Since the start of 2020, the S&P 500 is up less than one percent (0.003% to be precise).

Again, ServiceNow was already a great tech stock before the coronavirus pandemic, but COVID-19 saw demand for the company’s products and services increase significantly.

ServiceNow Inc reported strong first-quarter results in April, and the expectations for its second-quarter results (which will be released on July 29) are robust. This explains the recent run-up in the company’s share price.

ServiceNow also recently partnered with Zoom Video Communications Inc (NASDAQ:ZM), expanded its data center capacity in Europe, announced a strategic acquisition, and launched new products.

NOW Stock Overview

Based in Santa Clara, California, ServiceNow Inc provides software as a service (SaaS) for technical management of large organizations.

The company specializes in IT management, IT operations management, and IT business management. Its software allows users to manage projects, teams, and customer interactions.

All of which, the company says, increases cloud deployment, improves productivity, and reduces costs.

ServiceNow’s solutions are used by organizations in financial services, consumer products, IT services, healthcare, government, education, and technology.

The company has more than 6,200 global customers, including about 80% of the Fortune 500. (Source: “Investor Presentation First Quarter 2020,” ServiceNow Inc, last accessed July 24, 2020.)

Chart courtesy of StockCharts.com

Strong Q1 Results, Confident Outlook

On April 29, ServiceNow announced that its revenue for the first quarter (ended March 31) increased 33% year-over-year to $1.0 billion. Subscription revenue increased 34% to $995.0 million. (Source: “ServiceNow Reports First Quarter 2020 Financial Results,” ServiceNow Inc, April 29, 2020.)

During the quarter, the company closed on 37 transactions with more than $1.0 million in new annual contract value (ACV), a rise of 48% year-over-year. The company now has 933 total customers with more than $1.0 million in ACV, a rise of 30% year‑over‑year.

First-quarter net income came in at $48.0 million, or $0.25 per share, compared to $0.24 per share in the same period last year. Adjusted net income was $1.09 per share, versus $1.05 in the same prior-year period.

Wall Street was looking for revenue of $1.0 billion and adjusted earnings of $0.96.

ServiceNow Inc expects to report second-quarter subscription revenue between $995.0 and $1.0 billion, representing year-over-year growth of 27% to 28%. It also expects to report full-year subscription revenue between $4.12 billion and $4.15 billion, for a year-over-year gain of about 27%.

Analyst Take

The coronavirus has forced many companies into the cloud, as more and more people began working from home. ServiceNow Inc has helped many of those companies adapt.

ServiceNow is an innovative tech company with a strong balance sheet, growing revenues, and ongoing profitability. In fact, during the first quarter, the company exceeded the high end of its own guidance for subscription revenue and billings. It also reported another strong quarter of operating profit and free cash flow.

Because of its recurring revenue model, ServiceNow Inc is in a strong financial position to weather near-term uncertainties and is confident in its path to $10.0 billion in revenue and beyond.