Early ServiceNow Q3 Performance Checks Indicate “Positive” Outlook – Stifel

ServiceNow experienced a significant boost in demand during the third quarter, particularly in its commercial and public-sector segments, as revealed by analysts at Stifel. Their analysis indicates a notable improvement compared to the first half of the year.

The analysts noted that recent observations highlighted robust performance in ServiceNow’s international operations, especially in Canada, Latin America, and the Middle East. Consequently, they anticipate that the company will achieve a current remaining performance obligation (cRPO) growth of at least 23.5% for the recently concluded third quarter, surpassing its previous guidance of 22%.

According to Stifel’s research, the company’s sales pipeline appears “healthy,” which should contribute to a strong cRPO outlook for the fourth quarter, expected to be about 100 basis points above the consensus estimate of 21.5% year-on-year when adjusted for constant currencies.

The analysts expressed optimism, stating, “Net/net, we expect that ServiceNow’s expanding platform, growing pipeline, large deal momentum, and emerging generative artificial intelligence opportunities should enable the company to maintain over 20% revenue and free cash flow growth, along with margin expansion in the coming years.”

In July, ServiceNow raised its annual subscription guidance after reporting second-quarter results that exceeded expectations. The company posted adjusted earnings of $3.13 per share, with revenue reaching $2.63 billion, surpassing analysts’ forecasts of $2.82 per share on revenue of $2.60 billion.

Subscription revenues increased by 23% year-over-year to $2.54 billion, driven by new business acquisitions. ServiceNow also reported 88 transactions exceeding $1 million in net new annual contract revenue, marking a 26% increase from the previous year, which contributed to a strengthened backlog.

As of the second quarter, remaining performance obligations stood at $18.6 billion, reflecting a 31% year-over-year growth. Following this positive performance, the company adjusted its subscription revenue guidance to a range of $2.66 billion to $2.67 billion, up from the previous estimate of $2.525 billion to $2.530 billion.