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Will Robust Deal Wins Drive ServiceNow's (NOW) Q2 Earnings?

Zacks Equity Research

ServiceNow, Inc. NOW is scheduled to report second-quarter 2019 results on Jul 24.

Notably, the company has beaten the Zacks Consensus Estimate for earnings in the trailing four quarters, with an average positive surprise of 17.9%.

In the last reported quarter, the company’s earnings and revenues surpassed the corresponding Zacks Consensus Estimate. Moreover, the figures grew considerably on a year-over-year basis.

ServiceNow is benefiting from solid adoption of its robust digital workflow products. The company is leaving no stone unturned to win new contracts and expand global footprint, which is infusing confidence in the stock.



Coming to price performance, shares of ServiceNow have returned 65.5% year to date, substantially outperforming the industry’s rally of 32.5%.

Guidance & Estimates for Q2

The Zacks Consensus Estimate for second-quarter earnings is pegged at 64 cents per share, unchanged for the last 30 days. This indicates growth of about 30.6% from the year-ago figure. The consensus for revenues stands at $830.92 million, suggesting an improvement of 31.7% year over year.

For second-quarter 2019, ServiceNow anticipates non-GAAP adjusted subscription revenues to lie between $793 million and $798 million, representing year-over-year growth of 35-36%.

Moreover, non-GAAP adjusted subscription billings are projected to be within the range of $814 million to 819 million, suggesting year-over-year growth of 32-33%. The Zacks Consensus Estimate for non-GAAP subscription billings for the second quarter is pegged at $806 million.

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

Factors Likely to Influence Q2 Results

ServiceNow is benefiting from expanding global presence, strong partnerships, consistent renewal rate and synergies from strategic buyouts. As businesses, government agencies, among others “cloudify” their infrastructure, ServiceNow platform is well positioned to capitalize on the opportunity.

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

Moreover, the company updates Now Platform with new intelligent cognitive capabilities, which is expected to generate incremental adoption, consequently bolstering the top line. For instance, during the quarter under review, ServiceNow inked deal to acquire Israel-based Appsee to enhance Now platform with robust deep user analytics capabilities.

Further, 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 is expected to favor top line in the second quarter.

The aforementioned factors are expected to aid ServiceNow in bolstering enterprise customer base, which exceeded 5,400 at the end of the last reported-quarter.

ServiceNow, Inc. Price and EPS Surprise

 

ServiceNow, Inc. Price and EPS Surprise

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

However, expenses pertaining to the opening of two new data centers in Osaka and Tokyo, aimed at expanding presence in Japan, are likely to limit margin expansion in the near term.

Notably, management anticipates non-GAAP operating margin to be 17% in the second quarter, indicating a sequential decline of 200 basis points.

Further, stiff competition in the non-ITSM market is compelling ServiceNow to increase spending on sales and marketing, which is a headwind.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

ServiceNow carries a Zacks Rank #2 and has an Earnings ESP of 0.00%, which makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks you may consider, as our proven model shows that these have the right combination of elements to post an earnings beat this quarter.

Helix Energy Solutions Group, Inc. HLX has an Earnings ESP of +7.61% and a Zacks Rank #1. The company is slated to report second-quarter 2019 earnings on Jul 24. You can see the complete list of today’s Zacks #1 Rank stocks here.

Warrior Met Coal, Inc. HCC has an Earnings ESP of +8.66% and a Zacks Rank #2. The company is scheduled to report second-quarter 2019 earnings on Jul 31.

CGI Group, Inc. GIB has an Earnings ESP of +1.27% and a Zacks Rank #2. The company is set to report third-quarter 2019 earnings on Jul 31.

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