ServiceNow: NOW Q1 Earnings Beat Estimates, Revenues Rise Y/Y, Shares Gain

In This Article: ServiceNow NOW reported first-quarter 2025 adjusted earnings of $4.04 per share, which beat the Zacks Consensus Estimate by 6.60% and increased 18.5% year over year. Revenues of $3.09 billion surpassed the consensus mark by 0.18% and increased 18.6% year over year. At constant currency (cc), revenues increased 19.5% year over year to $3.12 billion. Following the results, NOW shares jumped 9.2% in the pre-market trading. ServiceNow's earnings beat the Zacks Consensus Estimate in the trailing four quarters, the earnings surprise being 7.02%, on average. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.) ServiceNow, Inc. Price, Consensus and EPS Surprise ServiceNow, Inc. Price, Consensus and EPS Surprise ServiceNow, Inc. price-consensus-eps-surprise-chart | ServiceNow, Inc. Quote NOW's Q1 Top-Line Details Subscription revenues improved 19.1% year over year on a reported basis to $3.01 billion. On a cc basis, revenues increased 20% to $3.03 billion. Professional services and other revenues increased 4.5% year over year on a reported basis to $83 million and 6% on a cc basis to $84 million. At the end of the first quarter, the current remaining performance obligations were $10.31 billion, up 22% year over year on a cc basis. Remaining performance obligations, on a cc basis, rose 25.5% year over year to $22.2 billion. ServiceNow had 72 transactions of more than $1 million in net new annual contract value (ACV) in the first quarter. The company expanded its customer relationships, reaching 508 customers with more than $5 million in ACV at the end of the reported quarter, which represents 20% year-over-year customer growth. NOW's Operating Details In the first quarter, the non-GAAP gross margin was 82%, down 150 bps on a year-over-year basis. The subscription gross margin was 84.5%, which contracted 100 bps year over year. Professional services and other gross margins were 4% compared with 15.5% in the year-ago quarter. As a percentage of revenues, operating expenses decreased 300 bps on a year-over-year basis to 64.3%. ServiceNow's non-GAAP operating margin expanded 50 bps on a year-over-year basis to 30.9%. AI Deals Boost NOW's Global Growth Prospects ServiceNow partnered with Vodafone Business to launch AI-powered service management solutions. This collaboration aims to enhance customer service by enabling faster query resolution, proactive anomaly detection and streamlined tool deployment. A new partnership with Aptiv focuses on integrating ServiceNow's AI platform with edge intelligence to improve automation and efficiency across sectors such as telecommunications, automotive, aerospace, defense and industrial industries. In early 2025, ServiceNow rolled out the "Yokohama" platform update, which focuses on artificial intelligence, data management and user experience enhancements. This release aims to help organizations streamline operations and enhance digital workflows. Earlier this month, ServiceNow announced the acquisition of Logik.ai, a company specializing in AI-powered and Configure, Price, Quote solutions. This move is set to bolster ServiceNow's CRM offerings, particularly in sales and order management, by integrating advanced AI capabilities. ServiceNow, Inc. Price, Consensus and EPS Surprise NOW's Balance Sheet & Cash Flow As of March 31, 2025, NOW had cash and cash equivalents and short-term investments of $6.60 billion compared with $5.76 billion as of Dec. 31, 2024. Long-term investments were $4.34 billion. In the reported quarter, cash from operations was $1.68 billion compared with $1.64 billion in the previous quarter. ServiceNow generated a free cash flow of $1.48 billion in the reported quarter, up from $1.40 billion in the prior quarter. NOW Provides Cautious Q2 & FY25 Guidance Despite the first-quarter outperformance, the company is only partially incorporating currency tailwinds into its full-year outlook, citing geopolitical risks. For 2025, NOW expects subscription revenues of $12.640-$12.680 billion, which suggests a rise of 18.5-19% from 2024 on a GAAP basis and 19.5% on a non-GAAP basis. ServiceNow expects the non-GAAP subscription gross margin to be 83.5% and the non-GAAP operating margin to be 30.5%. Moreover, the free cash flow margin is expected to be 32%. For the second quarter of 2025, subscription revenues are projected between $3.030 billion and $3.035 billion, suggesting a marginal year-over-year improvement of 19-19.5% on a GAAP basis. At cc, subscription revenues remain flat at 19.5%. ServiceNow expects the non-GAAP operating margin to be 27% in the current quarter. Zacks Rank & Stocks to Consider ServiceNow currently has a Zacks Rank #3 (Hold). ATN International ATNI, CommScope COMM and DigitalOcean DOCN are some better-ranked stocks in the broader Zacks Computer and Technology sector. ATNI and COMM sport a Zacks Rank #1 (Strong Buy) each, and DOCN has a Zacks Rank #2 (Buy) at present. You can see the complete list of today's Zacks #1 Rank stocks here. ATN International is scheduled to report its first-quarter 2025 results on April 30. CommScope is set to report its first-quarter 2025 results on May 1, and DigitalOcean is scheduled to report its first-quarter 2025 results on May 6. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report ATN International, Inc. (ATNI) : Free Stock Analysis Report ServiceNow, Inc. (NOW) : Free Stock Analysis Report CommScope Holding Company, Inc. (COMM) : Free Stock Analysis Report DigitalOcean Holdings, Inc. (DOCN) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research