Published on January 25, 2024, 4:07 am
Workflow software company ServiceNow Inc. has announced its impressive fourth-quarter results, surpassing Wall Street’s expectations on multiple metrics. The company attributed its success partly to the aggressive integration of artificial intelligence capabilities into its core software offerings.
ServiceNow Chairman and Chief Executive Bill McDermott stated that generative AI has injected new energy into the company’s already high-performing engine. He emphasized that the company’s intelligent platform for end-to-end digital transformation has resulted in significant productivity gains and explosive growth, marking a breakthrough moment for ServiceNow.
The fourth-quarter results reported subscription revenue of $2.365 billion, a 27% increase from the previous year and exceeding the projected $2.32 billion. Total revenue reached $2.437 billion, surpassing the consensus estimate of $2.402 billion. Earnings before certain costs such as stock compensation stood at $3.11 per share, comfortably beating the forecasted $2.78 per share. The company’s adjusted operating margin was 29%, ahead of Wall Street’s expectation of 27.5%. Additionally, current remaining performance obligations amounted to $8.6 billion, up by 24%, outperforming the predicted 21% gain.
In an interview with Barron’s, McDermott shared that ServiceNow is now approaching the milestone of achieving an annual subscription revenue run-rate of $10 billion, primarily due to incorporating numerous AI features into its products. He highlighted that many of these new features were launched in September and have already made a substantial impact on the company’s financial performance.
ServiceNow customers are reaping benefits from AI in several ways, including a remarkable 52% improvement in speed when designing and building new applications, according to McDermott. Furthermore, research indicates that tech customers are expected to invest approximately $3 trillion in generative AI products between now and 2027. In a recent survey, all corporate CEOs expressed their intention to invest in generative AI in the future, with 70% planning to raise additional capital or reallocate funds to support AI initiatives. McDermott confidently stated, “The productivity AI delivers is undeniable, and the savings will be incredible.”
Industry analyst Rebecca Wettemann from Valoir noted that ServiceNow’s growth is a direct result of its early success in leveraging AI investments, particularly through its ServiceNow Assist capabilities integrated into various products last year. Wettemann highlighted that ServiceNow stands out by focusing on both large language models and domain-specific models, enabling actionable outcomes based on AI-generated results through workflows that connect the front, middle, and back office.
Looking ahead to the first quarter of fiscal 2024, ServiceNow anticipates subscription revenue within the range of $2.51 billion to $2.515 billion, representing a growth rate of 24.5%, surpassing Wall Street’s forecasted subscription revenue of $2.461 billion. The company also expects its remaining performance obligations to increase by 20%, while maintaining an operating margin of 29%.
For the full year, ServiceNow predicts subscription revenue reaching between $10.555 billion and $10.575 billion—an increase of 22% at the upper end of this range. In comparison, Wall Street estimates ServiceNow’s subscription revenue to be around $10.474 billion.
Despite these positive results, ServiceNow’s stock saw a slight decline of 0.5% during late trading; however, it has gained an impressive 73% over the past year.
In conclusion, ServiceNow’s exceptional fourth-quarter results demonstrate the significant impact that generative AI has had on driving growth and improving productivity within its software offerings. With its commitment to incorporating AI capabilities and its ability to deliver differentiated solutions through workflows across various business functions, ServiceNow is well-positioned for continued success in the rapidly evolving domain of artificial intelligence.