ServiceNow Inc (NOW) Q4 2024 Earnings Call Highlights: Strong Growth in Subscription Revenue ...

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Fri, Jan 31, 2025, 12:23 AM 4 min read

Subscription Revenue: $2.866 billion in Q4, 21% year-over-year growth in constant currency.
Remaining Performance Obligations (RPO): Approximately $22.3 billion, 26% year-over-year constant currency growth.
Current RPO: $10.27 billion, 22% year-over-year constant currency growth.
Operating Margin: 29.5% for Q4, up 200 basis points year over year.
Free Cash Flow Margin: 47.5% for Q4; 31.5% for full year 2024, up 100 basis points year over year.
Total Free Cash Flow: $3.5 billion for 2024.
Cash and Investments: $10 billion at year-end.
Renewal Rate: 98% in Q4.
Large Deals: 170 deals greater than $1 million in net new ACV in Q4, including 19 deals over $5 million and 3 deals over $20 million.
Customer Base: Approximately 8,400 customers, with 2,109 generating over $1 million in ACV.
Share Repurchase Program: Approximately 293,000 shares repurchased in Q4, with $266 million remaining of the original $1.5 billion authorization.
2025 Subscription Revenue Guidance: Between $12.635 billion and $12.675 billion, 20% year-over-year growth at the midpoint.
2025 Operating Margin Guidance: 30.5%, up 100 basis points year over year.
2025 Free Cash Flow Margin Guidance: 32%.

Warning! GuruFocus has detected 5 Warning Sign with NOW.

Release Date: January 29, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

ServiceNow Inc (NYSE:NOW) reported a strong Q4 2024, exceeding expectations with a subscription revenue growth of 21% and CRPO growth of 22%.
The company has a robust balance sheet with $10 billion in cash and investments, supporting its growth initiatives.
ServiceNow Inc (NYSE:NOW) is experiencing significant growth in its AI offerings, with a 150% quarter-over-quarter increase in deals for its Pro Plus AI solutions.
The company continues to expand its enterprise platform, securing 19 deals greater than $5 million in net new ACV and landing its largest new logo deal ever.
ServiceNow Inc (NYSE:NOW) is recognized as a leader in the 2024 Gartner Magic Quadrant for CRM Customer Engagement Center and the Forrester Wave for task-centric automation software.

Negative Points

The company anticipates a more back-end weighted deal linearity in 2025 for federal business due to the change in the presidential administration.
ServiceNow Inc (NYSE:NOW) is facing FX headwinds, impacting its subscription revenue and CRPO growth outlook.
The transition to a hybrid consumption and subscription model may take time to build up on the consumption side, potentially affecting near-term revenue growth.
Despite strong growth, the company acknowledges the need for continued innovation and investment in AI to maintain its competitive edge.
There is a risk associated with the rapid commoditization of AI models, which could impact ServiceNow Inc (NYSE:NOW)'s differentiation in the market.

Q & A Highlights

Q: Can you talk about your decision to implement a hybrid consumption and subscription model, and how confident are you in managing both? A: Our goal is to combine subscription and consumption pricing, allowing customers to start with a base subscription for predictability and then scale with agentic AI through meter-based pricing. This model provides both revenue predictability and growth potential, as customers derive financial gain from using agentic AI agents. It's a balanced approach that benefits both ServiceNow and our customers.

Q: How are you assessing the impact of commoditized AI models like DeepSeek on ServiceNow's strategy? A: The commoditization of AI models is beneficial for ServiceNow as it allows us to focus on differentiating through applications and business processes. Our platform's ability to orchestrate and operationalize AI to create meaningful outcomes sets us apart. We are committed to responsible AI and are exploring various models, including DeepSeek, to ensure we provide the best outcomes for our customers.

Q: With many vendors pushing agentic capabilities, how does ServiceNow plan to stand out in this fragmented landscape? A: ServiceNow's AI orchestration serves as the control tower for business transformation, offering a unified platform for IT, employee, and customer workflows. Our architectural advantage allows us to integrate and orchestrate various agents, providing a seamless experience. Our RaptorDB and connectors to major data sources further enhance our offering, making us a preferred choice for customers looking for comprehensive solutions.

Q: How do you view the current IT spending environment, and what changes have you observed? A: The IT spending environment remains similar, but there's a shift from AI fascination to business model innovation. CEOs are prioritizing AI-led strategies, creating leadership roles for AI and data within their organizations. This focus on AI is opening up budgets for solutions that deliver tangible business outcomes, and ServiceNow's agentic AI offerings are well-positioned to capitalize on this trend.

Q: Can you elaborate on the go-to-market optimizations and their impact on guidance? A: We are building on our strengths with a focus on subscription-based pricing and industry-specific solutions. Our RaptorDB and Now Assist agentic AI portfolio are key components of our strategy. The go-to-market optimizations include expanding our reach in commercial and direct-to-consumer markets, leveraging our platform's capabilities. These efforts are factored into our guidance, ensuring a comprehensive approach to growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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