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ServiceNow stock has risen 48% so far this year.
Dreamstime
ServiceNow
posted better-than-expected results for its latest quarter and lifted its full-year outlook.
ServiceNow (ticker: NOW) also unveiled two major additions to its suite of generative artificial intelligence tools, and announced an alliance with
Nvidia
(NVDA) and
Accenture
to help companies develop generative AI software.
Despite the strong earnings, ServiceNow shares in late trading were off 3.4%.
ServiceNow positioned its second-quarter results as benefiting from its push into AI software.
“No doubt that our generative AI position is already playing a role” in our growth, CEO Bill McDermott said in an interview with Barron’s. He cited a recent Goldman Sachs forecast that generative AI could boost global gross domestic product by $7 trillion over the next decade. The trend, he says, will affect “every department in every company in every industry across the world…it’s the biggest inflection in the history of information technology.”
For the second quarter, ServiceNow (ticker: NOW) posted revenue of $2.15 billion, up 23% from the year-ago quarter, and ahead of the Street consensus forecast as tracked by FactSet of $2.13 billion. Subscription revenue was $2.075 billion, up 25%, ahead of both the Street consensus forecast at $2.043 billion, and the company’s guidance range of $2.04 billion to $2.045 billion.
McDermott said in the earnings release that results were “supercharged by unprecedented demand for our organic innovation.” He added the company is already seeing internal productivity gains from its own AI tools.
Non-GAAP earnings were $2.37 a share, above the Street consensus forecast at $2.05 a share. Current remaining performance obligations at quarter-end were $7.2 billion, up 25%; Service Now’s guidance had called for the measure to increase 23%.
For the September quarter, ServiceNow sees subscription revenue of $2.185 billion to $2.195 billion, above Street consensus at $2.144 billion. The company sees operating margin on an adjusted basis of 27%, edging consensus at 26.4%.
The company also lifted its full-year subscription revenue forecast, projecting $8.58 billion to $8.6 billion, up from a previous estimate of $8.47 billion to $8.52 billion. ServiceNow inched up its full-year operating margin forecast to 26.5% from 26%.
In a separate announcement, ServiceNow said it is adding two new capabilities to its collection of AI software: case summarization and text-to-code. Case summarization, the company said, uses generative AI tools to read and distill case information across IT, HR, and customer service cases.
Text-to-code allows developers to write natural language text descriptions of the type of code they want—and the software delivers “code suggestions, and in some cases complete code,” which can be reviewed, edited, and implemented.
ServiceNow’s new alliance with Nvidia and Accenture, dubbed AI Lighthouse, is intended to “fast-track the development and adoption of enterprise generative AI capabilities,” the company said.
Asked about how the company intends to monetize its AI innovations, McDermott said the company plans to launch a “Pro+” version of its software applications in September for AI-enhanced versions of applications for IT, HR, and customer experience management, among other things. The company currently offers Standard and Pro versions of its software.
So far in 2023, ServiceNow shares have rallied 49%.
Write to Eric J. Savitz at eric.savitz@barrons.com