ServiceNow Inc: Zacks’ Bull of the Day Play

Cloud services and enterprise solutions are tech hotspots that have been considered growth drivers for many companies over the past year.  Several companies have established positions in the cloud, and others have offered new and improved enterprise solutions to integrate multiple facets of a company’s business.  But one, ServiceNow Inc. (NOWSnapshot Report), is considered an enterprise cloud company, and is the Zacks Bull of the Day.

This Zacks Ranked #1 (Strong Buy) company provides cloud-based services that automate enterprise IT operations. The Company’s service includes a suite of applications built on its platform that automates workflow and integrates related business processes. It focuses on transforming enterprise IT by automating and standardizing business processes and consolidating IT across the global enterprise.

In their most recent earnings report, ServiceNow substantially beat both the Zacks Consensus Earnings and Revenues Estimates.  The company posted total revenues of $285.7 million, up +44% from the year ago quarter, with billings improving +41% YoY to $1.2 billion.  Further, the company had $227.6 million of free cash flow, posting an increase of 169% year over year.

According to Frank Slootman, President and CEO, “We marked a huge milestone in 2015, becoming only the second enterprise SaaS company to surpass $1 billion in revenue.  This was our largest quarter yet for net new annualized contract value, punctuated by 26 net new Global 2000 customers in the quarter.”  Also, according to Michael Scarpelli, CFO, “We now have 230 customers each paying us more than $1 million in annualized contract value, a 50% increase year-over-year. We expect to continue to show meaningful free cash flow generation at scale, as seen by our 24% free cash flow margin guidance in 2016.”

Going into Q1 16, management expects to see total revenues in a range of $298-$303 million, which would represent growth between 41%-43%.  Moreover, the company expects to see billings in a range of $360-$365 million, amounting to a year over year growth level between 34-36%.

As you can see from the graph below, the company saw a bit of pullback just before their recent earnings report.

But due to their strong quarterly performance and future guidance, estimates for Q1 16, Q2 16, FY 16, and FY 17 have all improved over the past 7 days.  Q1 16 improved from -$0.35 to -$0.22, Q2 16 rose from -$0.37 to -$0.20, FY 16 jumped from -$1.34 to -$0.65, and FY 17 improved from -$1.17 to -$0.42.

Bottom Line

In 2016, management expects to expand into new products and channels, and has trimmed sales compensation in efforts to control costs and to grow the company.  Currently, the company has 230 customers billed above $1 million, and has been consistent in the addition of new clients quarter over quarter.  Further, management is expecting total revenue growth and total billing growth to be above 34% for 2016.

Given this data, all signs point to a strong and prosperous 2016 for ServiceNow Inc.

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