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Cloud Stocks: ServiceNow Believes Strength Lies in Tie-ups

Posted on Tuesday, Aug 6th 2019

Cloud-based enterprise services provider ServiceNow (NYSE: NOW) recently announced its second quarter results that outpaced market expectations. Right after the results, its stock registered a 60% price increase since the start of the year. Given ServiceNow’s growing tie-ups to expand market reach, that growth will most likely continue.

ServiceNow’s Financials

ServiceNow’s quarterly revenues grew 35% over the year to $833.9 million, ahead of the market’s expectations of $831 million. Adjusted earnings came grew 44% to $0.71 per share and were ahead of the market’s forecast of $0.63 for the quarter.

For the quarter, ServiceNow’s software billings grew 31% to $871 million, ahead of the estimates of $855 million. However, its subscription revenue rose 33% to $781 million, falling short of the estimates of $782.7 million. Professional services and other revenues grew 16% to $52.9 million.

For the current quarter, ServiceNow forecast subscription revenues of $830-$835 million, falling short of the market’s forecast of $836 million. The company expects to end the current year with subscription revenues of $3.25-$3.26 billion, in line with the Street’s forecast of $3.25 billion.

ServiceNow’s Alliances

ServiceNow is going full steam ahead by entering into various strategic partnerships with bigger tech giants. Earlier in the year, it had announced a partnership with Adobe to integrate Adobe customer experience data with customer data. The alliance was aimed at leveraging Adobe Experience Platform and ServiceNow Now Platform to enhance Adobe’s real-time customer profiles with rich customer data, allowing mutual customers to integrate and leverage digital workflows, service catalogs and content.

And, more recently, it announced another tie-up with Microsoft. As part of the agreement, ServiceNow will use Microsoft’s Azure cloud to host workloads for the US and Australian governments and enterprises. The agreement is the first of its kind where ServiceNow will make its software available for use with a major public cloud-computing vendor. Microsoft will also sell ServiceNow applications, thus helping ServiceNow expand its market reach in other geographic regions. The move will help ServiceNow leverage Microsoft’s security certifications as it pursues government contracts around the world. In return, Microsoft will gain significant lift in the cloud-application space.

The company also entered into an agreement with Deloitte to jointly develop, coordinate, and bring to market new products, assets, and solutions built on the Now Platform. The tie-up will help deliver seamless digital experiences across the enterprise, improve workflows, and enhance productivity. Deloitte will also be the lead launch partner for its new financial operations management product. ServiceNow’s first application is Finance Close Automation, which will help finance and accounting teams digitize their workflows to reduce Finance Close risk, improve team satisfaction, and accelerate the Finance Close process.

Its stock is currently trading at $256.81 with a market cap of $47.64 billion. Like other technology stocks, its stock had also fallen to a 52-week low of $147.63 in December last year. It had touched a record high of $303.17 last month.

The recent dip in the stock price is attributed to market concerns on its high valuation and the lower than expected subscription revenue outlook for the current quarter. Some analysts believe that ServiceNow is rather highly valued with a P/Sales multiple of 19.2 compared with the peer group median multiple of 15.2.

Photo Credit: Santa3/Pixabay

This segment is a part in the series : Cloud Stocks

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