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What's in the Offing for ServiceNow's (NOW) Q3 Earnings?

Zacks Equity Research

ServiceNow, Inc. NOW is scheduled to report third-quarter 2019 results on Oct 23.

Notably, the company has beaten the Zacks Consensus Estimate for earnings in the trailing four quarters, with an average positive surprise of 17.2%.

Q3 Estimates

The Zacks Consensus Estimate for third-quarter earnings is pegged at 89 cents per share, indicating growth of 30.9% from the year-ago figure. The figure has remained unchanged for the last 30 days. The consensus estimates for revenues stands at $885.8 million, suggesting an improvement of 31.6% year over year.

Past-Quarter Performance

In the second quarter, the company reported non-GAAP earnings of 71 cents per share, surpassing the Zacks Consensus Estimate by 10.9%. Further, the figure advanced 44.9% on a year-over-year basis.

Revenues of $833.9 million outpaced the Zacks Consensus Estimate of $831 million and improved 32% from the year-ago quarter.

Let's see how things are shaping up prior to this announcement.

ServiceNow, Inc. Price and EPS Surprise

 

ServiceNow, Inc. Price and EPS Surprise

ServiceNow, Inc. price-eps-surprise | ServiceNow, Inc. Quote

Factors to Consider

ServiceNow is likely to have benefited from solid adoption of its robust digital workflow products in the third quarter. The company is leaving no stone unturned to win new contracts and expand global footprint which is anticipated to get reflected in the third-quarter performance.

Expanding global presence, strong partnerships, consistent renewal rate and synergies from strategic buyouts is also likely to have contributed to the company’s third-quarter performance. ServiceNow platform is likely to have gained traction as businesses and government agencies “cloudify” their infrastructure. This is likely to have contributed to the company’s quarterly performance in the to-be-reported quarter’s performance.

Markedly, Now Platform’s digital workflows have been selected by notable tech companies including Microsoft MSFT, SAP, Adobe, salesforce, Oracle, Workday, among others, which is anticipated to get reflected in the to-be-reported quarter’s results.

Moreover, the company has updated Now Platform with new intelligent cognitive capabilities, which is expected to have contributed to incremental adoption and consequently the top line in the third quarter

Further, the company’s top line is anticipated to reflect the momentum of adoption of its wide range of application-based products by public and big private companies and expanding penetration among Fortune 500 companies.

Further, the company’s total number of customers contributing more than $1 million to the business reached 766 in the second quarter, a trend that most likely continued in the to-be-reported quarter.

For third-quarter 2019, ServiceNow anticipates non-GAAP adjusted subscription revenues to lie between $836 million and $841 million, representing year-over-year growth of 33-34%.

Moreover, non-GAAP adjusted subscription billings are projected to be within the range of $857-$862 million, representing year-over-year growth of 27-28%. The Zacks Consensus Estimate for non-GAAP subscription billings for the second quarter is pegged at $851 million.

However, expenses pertaining to the opening of two new data centers in Osaka and Tokyo, aimed at expanding presence in Japan, are anticipated to get reflected in the third-quarter results.

Further, the company’s third-quarter performance is expected to reflect stiff competition in the non-ITSM market because of increased spending on sales and marketing.

Earnings Whispers

ServiceNow does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for ServiceNowis 0.00%.

Zacks Rank: ServiceNowcurrently carries a Zacks Rank #3.

Stocks With Favorable Combination

Here are a few stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat.

Veoneer, Inc. VNE has an Earnings ESP of +7.17% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

SAP SE SAP has an Earnings ESP of +4.35% and a Zacks Rank #3.

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