ServiceNow stock popped on Thursday after the enterprise software maker delivered a strong second-quarter earnings report, beating on adjusted profit, revenue and a key growth metric. Analysts say ServiceNow seems to be one of a few software companies gaining traction with generative artificial intelligence.
On the stock market today, ServiceNow stock surged 13,4% to close at 828.79.
"ServiceNow delivered strong Q2 results and outlook, driven again by solid execution across the workflow automation suite," said Bank of America analyst Brad Sills in a report. "Results should provide some relief for the stock and the broader software group, given questions on the software spending environment, following choppy results in the April quarter."
Also, ServiceNow said its president and chief operating officer, Chirantan "CJ" Desai, has resigned.
Reported after the market close on Wednesday, ServiceNow earnings for the quarter ended June 30 rose 33% to $3.16 per share on an adjusted basis. Also, revenue rose 22% to $2.627 billion, the Santa Clara, Calif-based enterprise software maker said.
Key Sales Growth Metric Beats
ServiceNow stock analysts expected the company to report earnings of $2.83 a share on revenue of $2.607 billion.
Additionally, ServiceNow said subscription revenue rose 23% to $2.54 billion, edging by the consensus estimate of $2.53 billion.
Current remaining performance obligations, or CRPO, for ServiceNow came in above expectations. CRPO rose 22% to $8.78 billion. Analysts had projected CRPO of $8.68 billion.
CRPO bookings are an aggregate of deferred revenue and order backlog and serve as a sales growth metric.
AI Push Gaining Momentum?
"ServiceNow is proving to be one of the most effective names in software to drive GenAI adoption," said TD Cowen analyst Derrick Wood in a report. "We think in part this stems from its workflow orchestration positioning and its tech approach with its own (AI models) trained on domain-specific data that drive high accuracy and lower costs. We think we are in the early innings of a strong new AI-led product cycle with Now Assist."
Meanwhile, ServiceNow is one of many AI stocks to watch. For most big application software companies, how to charge for AI-related products has been an issue. ServiceNow bundles AI tools with premium products.
At BMO Capital Markets, analyst Keith Bachman said in a report: "ServiceNow continues to deliver solid traction from gen AI, highlighted by Now Assist offerings launched three quarters ago. Management stated that Now Assist net new annual contract value doubled quarter-over-quarter. Existing customers adopting NOW Assist include large enterprises such as Adobe, Dell Technologies."
Further, most enterprise software makers will not monetize generative AI, or "conversational AI," in a material way until late 2025, some analysts say. Some U.S. companies are pursuing custom AI software development projects, which will take longer to ramp up commercially.
Meanwhile, here's a look at the enterprise AI market.
At RBC Capital, analyst Matthew Hedberg said in a report: "ServiceNow is seeing evidence of gen AI driving larger engagements and longer contract terms."
ServiceNow Stock: COO Departs
Meanwhile, analysts reacted to the departure of COO Desai. "We believe he played a very important role in setting the product agenda and we see his departure as a loss," said Jefferies analyst Samad Samana in a report. "We believe the impact to the R&D organization and strategy will be worth monitoring. With that said, we believe NOW has a deep management bench overall and, more specifically, within the R&D organization."
For the current quarter ending in September, ServiceNow forecast subscription revenue in a range of $2.66 billion to $2.665 billion, just below analyst consensus estimates of $2.672 billion. Also, ServiceNow predicted Q3 CRPO growth of 22.5% year over year.
Guidance is expected to be key for software companies in June/July earnings reports as analysts focus on trading multiples and valuation heading into 2025. Most software companies have yet to monetize generative artificial intelligence tools, including ServiceNow.
ServiceNow Stock: Moving Into New Markets
Further, heading into the ServiceNow earnings report, the software stock gained 9% in 2024.
The company's software tracks and manages services provided by information-technology departments. Also, its self-service tech portal enables company employees to access administrative and workflow tools.
In addition, ServiceNow has expanded from its core business. It's branched into software for human resources, customer service management and security.
Moreover, ServiceNow stock holds a Composite Rating of 88, according to IBD Stock Checkup.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
