ServiceNow (NOW) To Report Q1 Earnings: Is A Beat In Store?

ServiceNow, Inc. (NYSE:NOW) is set to report first-quarter 2018 results on Apr 25. Notably, the company has surpassed the Zacks Consensus Estimate in three of the trailing four quarters and came in line in the remaining one, recording an average positive surprise of 17.48%.

In the fourth quarter of fiscal 2017, earnings of 35 cents per share were in line with the Zacks Consensus Estimate. However, the figure surged 45.8% from the year-ago quarter.

Moreover, revenues increased 37.9% year over year to $546 million, beating the Zacks Consensus Estimate of $535 million.

We believe robust adoption witnessed by company’s expanding range of application based products will drive top-line growth in the going-to-be-reported quarter.

Notably, shares of ServiceNow have gained 93.8% in the past year, significantly outperforming the industry’s 35.2% rally.

Guidance & Estimates

For first-quarter 2018, subscription revenues adjusted for constant currency, are forecast between $507 million and $512 million, representing 31-32% year-over-year growth.

The Zacks Consensus Estimate for revenues is pegged at $573.48 million,ahead of management’s guidance and translates to year-over-year growth of 37.60%.

Moreover, the Zacks Consensus Estimate for earnings is pegged at 37 cents per share, implying a surge of 54.17% from the year-ago quarter.

Factors at Play

ServiceNow’s platform and tools in the Global 2000 ("G2K") companies are gaining rapid traction.

Per the last reported quarter, ServiceNow catered to more than 40% of the G2K companies. It closed 41 contracts in the quarter with an annualized contract value ("ACV") of more than a million. The company had more than 500 customers, contributing more than $1 billion to the business, this figure increased 43% on a year-over-year basis.

Information Technology Service Management (“ITSM”) was part of 19 out of the top 20 deals struck in the last quarter. The company is likely to benefit from robust adoption of CSM and Security Operations products, in the non-ITSM HR segment.

New deal wins in Customer Service Management is also a positive. Moreover, the security operations product line struck its largest deal to date.

During the quarter, ServiceNow Security Operations and Tenable Cyber Exposure Platform entered into a strategic security alliance to accelerate the cyber risk management methods incorporated by government organizations and enterprises.

Per the U.S. General Services Administration (“GSA”) negotiated software agreement; enterprise agencies can access select ServiceNow platform solutions via a single contract. It will lower the costs for IT solutions and enhance the platform’s outreach.

We believe that all these will positively impact the company’s results in soon-to-be reported quarter and bolster customer base going ahead.

What Our Model Says

Per the Zacks model, a company with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP has good chances of beating estimates.

The Sell-rated stocks (4 or 5) are best avoided, especially when the company is seeing negative estimate revisions. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

ServiceNow has a Zacks Rank #3 and Earnings ESP of +6.43%, which raises confidence about a possible earnings surprise.

Stocks to Consider

Here are a couple of stocks from the broader technology sector, you may want to consider as our proven model shows that these too have the right combination of elements to post an earnings beat this quarter.

Western Digital (NASDAQ:WDC) has an Earnings ESP of +2.20% and a Zacks Rank #1.

Paycom (NYSE:PAYC) has an Earnings ESP of +0.33% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Advanced Micro Devices (NASDAQ:AMD) has an Earnings ESP of +1.19% and a Zacks Rank #3.

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