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Earnings Results: ServiceNow stock soars after earnings beat

ServiceNow Inc.’s stock jumped more than 9% in extended trading Wednesday after the software company reported quarterly results that beat expectations, results that the chief executive said “show that ServiceNow’s business model is set to flourish in any economic environment.”

ServiceNow NOW, -2.15% reported fourth-quarter earnings of $26 million, or 13 cents a share, on revenue of $1.61 billion, up from $1.25 billion a year ago. After adjusting for stock-based compensation and other effects, the company reported earnings of $1.46 a share, up from $1.17 a share a year ago. Analysts surveyed by FactSet had expected earnings of $1.43 a share on revenue of $1.6 billion on average.

ServiceNow tends to focus on subscription revenue more than overall revenue, stripping out professional services and other forms of sales. In their forecast, executives called for first-quarter subscription revenue of $1.61 to $1.615 billion and full-year subscription sales of $7.02 billion to $7.04 billion; analysts on average were expecting $1.62 billion and $7.02 billion, according to FactSet.

Shares jumped more than 9% in after-hours trading immediately following the release of the results.

“In this macro environment of a Great Resignation, supply-chain disruption and inflation, digital technologies are a growth-stimulating deflationary force,” ServiceNow Chief Executive Bill McDermott told MarketWatch earlier Wednesday. “These results show that ServiceNow’s business model is set to flourish in any economic environment.”

McDermott cited an IDC survey of CEOs that revealed most intend to sustain or increase IT spending, especially through digital transformation, for the foreseeable future. Consequently, he said ServiceNow is raising guidance for first-quarter subscription revenue growth.

The strong results highlight ServiceNow’s place as one of tech’s better performers as more enterprises modify their management of operating expenses, invest in automation and streamline workflows, according to analysts.

“ServiceNow continues to benefit from the rapid investments needed for businesses to keep up with digital transformation,” Daniel Newman, principal analyst at Futurum Research. “With strong growth on the top line (fourth-quarter subscription revenue was $1.52 billion), including a plethora of large customer wins, and 99% customer retention rates, it is hard not to like ServiceNow’s prospects both short and long term.”

ServiceNow also disclosed that CJ Desai, chief product and engineering officer, has been promoted to chief operating officer.

Shares of ServiceNow are down 6% in the past year, while the broader S&P 500 index SPX, -0.15% has gained 13.2%.

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