ServiceNow Inc. raised its annual subscription sales forecast, signaling a strong pipeline for automation software and betting the interest in artificial intelligence will continue to boost demand.
Subscription revenue will jump as much as 25% to $8.6 billion this year, the company said Wednesday in a statement. That forecast, which is 1.5 percentage points higher than the previous outlook in April, is due in part to more favorable currency fluctuations. It’s the second consecutive quarter that ServiceNow has raised its full-year guidance for subscription sales, a key metric for the software maker.
Still, the shares slipped about 3% in extended trading after closing at $577.27 in New York. Investors may be focusing on a “minor miss” in ServiceNow’s outlook for current remaining performance obligations — a measure of contracted future sales, said Bloomberg Intelligence’s Anurag Rana. The company projected 21.5% growth in constant currency compared with analysts’ average estimate of 22.7%. Expectations had been “elevated” heading into the results, with the stock having gained 49% this year, Oppenheimer analyst Brian Schwartz wrote ahead of the release.
ServiceNow is seeing a strong sales pipeline and high customer-retention rates, Chief Executive Officer Bill McDermott said in an interview. For the current period ending in September, subscription revenue will be about $2.19 billion, exceeding analysts’ estimates.
ServiceNow sells applications that help companies organize and automate their information technology operations. The company has focused on developing new artificial intelligence tools this year and in May announced a partnership for generative AI features with Microsoft Corp. Separately, ServiceNow on Wednesday announced the release of AI tools for code generation and case summarization using proprietary large language models built in collaboration with chipmaker Nvidia Corp.
In September, the company will release a new version of its platform with these new AI tools, which could drive a 60%-100% price increase among some customers, McDermott said. This potential new revenue isn’t reflected in the current outlook, he said.
The Santa Clara, California-based company said second-quarter subscription revenue increased 25% to $2.07 billion. Analysts, on average, projected $2.05 billion, according to data compiled by Bloomberg. Profit, excluding some items, was $2.37 a share, compared with an average estimate of $2.05.
ServiceNow said it had 1,724 customers with more than $1 million in annual contract value at the end of the quarter on June 30 — an 18% gain from a year earlier. While the customer total reflected a jump of 42 from the previous period, it was the slowest year-over-year increase the company has reported in at least four years.
The company said it had 45 customers with more than $20 million in annual contract value, a previously undisclosed metric. In May, ServiceNow announced its first share buyback and an increased focus on profit.
(Updates with comments from analyst in the third paragraph.)
