ServiceNow Tops On Q3 Earnings: Good News For Software Stocks?

The software giant powering workflow management and the digitization of businesses hit back with stellar results last night. Let’s have a look at ServiceNow’s [NOW] earnings and see if they might spell out good news for the greater software-as-a-service (SaaS) industry. 

This article was originally written by MyWallSt. Read more insights from the MyWallSt team here. 

ServiceNow’s Q4 earnings 

ServiceNow generated $1.6 billion in total revenue for the quarter, which was a 29% year-over-year (YoY) increase, but gross margins did slide slightly from 85% to 82%. The same drop in margins can be seen for 2021’s full fiscal year results, but there can be discrepancies quarter-on-quarter which can increase expenses, so this shouldn’t spark major concern. It continues to demonstrate its strength in customer retention, with 99% of its 1,359 large customers (companies spending over $1 million) renewing the service, and on average, the quarterly spend was $3.8 million.

The company expanded its suite of digital offerings with the launch of ‘ServiceNow Impact’ in January, an AI-powered platform that is aiming to advance the digitalization of enterprise customers through recommendations and insights.

ServiceNow reported a positive outlook for the coming year too, which projects a 26% growth rate. During the call, CEO Bill McDermott noted “customer demand for ServiceNow’s innovative platform is stronger than ever.” 

What does it mean for software companies?

This looks good for software businesses, but it doesn’t necessarily mean all of them will outperform. Companies reporting results will need to demonstrate the same trifecta of qualities that ServiceNow exhibited. Namely, a strong value proposition, optimistic forward-looking guidance, and a sticky business model with low churn.

2022 might poke holes in a few companies in earnings to come but past performance is a good indicator of where we can see this industry going, and software demand is continuing to defy the odds.

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