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ServiceNow (NOW) Gears Up for Q4 Earnings: What's in Store?

Zacks Equity Research
·5-min read

ServiceNow, Inc. NOW is scheduled to release fourth-quarter 2020 results on Jan 27.

The Zacks Consensus Estimate for revenues is currently pegged at $1.22 billion, which indicates growth of 28% from the year-ago quarter’s reported figure. Strength in the company’s product portfolio and its Now Platform is likely to have aided performance in the to-be-reported quarter.

The Zacks Consensus Estimate for fourth-quarter earnings has been steady at $1.06 in the past 30 days, which suggests an improvement of 10.4% from the prior-year quarter’s levels.

ServiceNow, Inc. Price and EPS Surprise

 

ServiceNow, Inc. Price and EPS Surprise
ServiceNow, Inc. Price and EPS Surprise

ServiceNow, Inc. price-eps-surprise | ServiceNow, Inc. Quote

 

Notably, the company has a trailing four-quarter earnings surprise of 14.13%, on average.

A Look at Factors Impacting Q4 Performance

ServiceNow’s fourth-quarter performance is expected to have benefitted from continued strong adoption of its workflows from enterprises undergoing digital transformation, globally, triggered by the COVID-19 crisis.

The company’s HR solutions have also been growing in popularity due to the heightened need for effective employee management amid evolving workspace trends. Higher adoption of HR offerings along with strong demand for ServiceNow’s customer service management (CSM) solutions is likely to have contribute to the top line the to-be-reported quarter.

ServiceNow's return to work solutions especially Safe Workplace Suite deserves a special mention. The gradual unlocking phase has commenced in many countries. With economies re-opening and people starting to go back to work, companies will need to provide highest safety standards for their employees to prevent spread of COVID-19 virus.

The robust adoption of Safe Workplace suite is anticipated to have driven results in the fourth quarter. The company’s Safe Workplace apps boasts of more than 900 customers.

ServiceNow expects fourth-quarter subscription revenues (non-GAAP) between $1.141 billion and $1.146 billion. Further, the company expects subscription billings (non-GAAP) are projected between $1.612 billion and $1.632 billion.

Notably, the Zacks Consensus Estimate for subscription billings is currently pegged at $1.635 billion, which indicates an improvement of 25.5% over the year-ago quarter’s tally.

New Product Launches Bode Well

Moreover, ServiceNow’s new product launches also are anticipated to have added to the top line in the fourth quarter.

In October 2020, ServiceNow launched Connected Operations solution that combines Internet of Things (IoT) data with ServiceNow digital workflows. The integration is aimed at helping business enterprises to manage their critical infrastructure in real time and enhance return on their IoT investments.

Prior to that, the company also announced the availability of Workplace Service Delivery solutions to offer enhanced digital experiences to employees driving productivity in evolving workplace trends.

Growing clout of the company's products instill optimism in the stock. Notably, shares of the company have rallied 73.3% in the past year compared with the industry’s return of 44.3%.

However, coronavirus induced weakness across small and medium businesses, is likely to have limited growth.

Also, higher expenditure on product innovation, might have exerted pressure on margins during the quarter under review. Further, in the third quarter 2020 earnings conference call, management noted that it anticipates marketing spend shift from the third quarter into the fourth quarter and incremental investments into pipeline generating activities to curb margin expansion.

Weakness across industries like airlines, retail, hospitality, energy and transportation, which are hit-hard by COVID-19 crisis remains an added concern for this Zacks Rank #5 (Strong Sell) company, at least in the near term.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Highlights for Q4

ServiceNow announced the purchase of AI-focused startup, Element AI for an undisclosed sum. Element AI buyout will assist ServiceNow to create an intelligent workflow platform to optimize decision-making for businesses and bolster employee productivity.

Further, ServiceNow added new functionalities on Workplace from Facebook FB platform to enhance communication across the distributed workforce especially deskless and frontline employees.

Also, ServiceNow announced that Now Platform as well as its Software-as-a-service (SaaS) solutions were available on Microsoft’s MSFT Azure regions in France and Singapore, for the companies in the highly-regulated sectors.

In October 2020, ServiceNow also collaborated with International Business Machines IBM to integrate the latter’s Watson AIOps with ServiceNow’s IT Service Management and IT Operations Management Visibility. The integration will assist enterprises to detect and avert IT issues and enhance operational efficiency.

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