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ServiceNow (NYSE:NOW) Stock Spikes On Stellar Q3 Earnings

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ServiceNow stock rallied in reaction to the company’s strong third-quarter adjusted earnings even as revenue lagged the Street’s estimates.

Workflow management software provider ServiceNow (NYSE:NOW) smashed analysts’ third-quarter earnings estimates despite a challenging macro environment. The company’s adjusted earnings per share increased 26.5% year-over-year to $1.96, beating analysts’ estimate of $1.85.

ServiceNow stock surged 13.1% in Wednesday’s extended trading session in reaction to the upbeat earnings.

The company’s Q3 revenue increased 21.1% year-over-year to $1.83 billion, with subscription revenue rising 22%. Continued digital transformation fueled revenue growth in the quarter. However, Q3 revenue fell short of the analysts’ estimate of $1.85 billion.  

In Q3, ServiceNow had 1,530 customers contributing over $1 million in annual contract value (ACV), reflecting year-over-year growth of 22%. Furthermore, the number of customers paying more than $10 million in ACV increased by 60%. At the end of Q3, the current remaining performance obligations (cRPO), which indicates contract revenue that will be recognized as revenue in the next 12 months, grew 18% to $5.87 billion.

During the Q3 earnings call, CEO William McDermott stated, “Our U.S. federal business had its best quarter ever in Q3. We saw strength across industries and business segments.”

Looking forward, ServiceNow expects Q4 subscription revenue of $1.834 billion to $1.839 billion. Analysts were expecting Q4 subscription revenue of $1.87 billion. The company lowered its full-year subscription revenue guidance to the range of $6.865 billion to $6.870 billion, compared to the prior guidance of $6.915 billion to $6.925 billion.

Meanwhile, ServiceNow announced that CEO McDermott will succeed founder Fred Luddy as the Chairman of the board. Luddy will remain a member of ServiceNow’s board.

What is the Target Price for ServiceNow?

ServiceNow scores the Street’s Strong Buy consensus rating based on 25 Buys and two holds. The average NOW stock price prediction of $528.80 implies 44.3% upside potential. Shares have tumbled 43.6% so far this year.

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