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ServiceNow's Strong Quarter Has Argus Raising Full-Year Estimates

ServiceNow's Strong Quarter Has Argus Raising Full-Year Estimates - ServiceNow, Inc. NYSE:NOW

Although ServiceNow Inc NOW 1.19% shares have appreciated 30 percent since they saw market bottom in February 2016, Argus’ Joseph Bonner believes the current stock valuation “contrasts well with what could be a strong revenue and profit ramp over the next few years.”

Bonner maintains a Buy rating on the company, while reaffirming the price target of $86.

Solid 2Q Results

ServiceNow reported robust 2Q16 results, with the revenue and EPS beating the consensus expectations.

The company also raised the low end of its full-year revenue guidance range once again by $15 million to $1,370 billion.

While the non-GAAP net income rose from the 2Q15 levels, the GAAP net loss narrowed.

Stock-Based Compensation

“Stock-based compensation accounts for most of the difference between GAAP and non-GAAP results. Stock-based compensation fell to 23 percent of revenue in 2Q16 from 27 percent in 2Q15,” Bonner mentioned.

Non-GAAP billings grew 33 percent to $375 million, while non-GAAP gross margin expanded 280 bps to 76.4 percent.

According to the Argus report, “ServiceNow’s offerings benefit from the secular trend away from the enterprise data center and toward the more easily scalable and cost effective cloud software-as-a service model.”

The company continues to be unprofitable on a GAAP basis, although it has reported posted non-GAAP earnings over the past seven quarters.

The non-GAAP EPS estimate for 2016 has been raised from $0.65 to $0.70.

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DateFirmActionFromTo
Jul 2016Pacific CrestMaintainsOverweight
Jul 2016Morgan StanleyMaintainsOverweight
Jul 2016CitigroupMaintainsBuy

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