ServiceNow, the workflow-management software company, posted strong Q4 and fiscal year 2023 earnings, exceeding expectations for both top- and bottom-line growth. These results have emerged in part from AI integrations into ServiceNow’s core products—and may pave the way for an ambitious approach to the CRM market.
Here’s an overview of the numbers.
Quarterly Financials
- Total revenue for Q4 2023: $2.437 billion, up 26%.
- Adjusted profit for Q4 2023: $3.11 per share (fully diluted), outperforming the Street consensus of $2.78 per share.
Other Key Numbers
- Q4 2023 subscription revenue: $2.365 billion, up 27%.
- Non-GAAP operating margin for Q4: 29%, exceeding the company’s forecast of 27.5%.
- Current remaining performance obligations: $8.6 billion, up 21.3% YoY.
- Total remaining performance obligations: $18 billion, compared to $14 billion in Q4 2022.
Analyst Notes
ServiceNow attributes its success, in part, to the integration of AI into its core offerings. CEO Bill McDermott said the company has also benefitted internally from the transformative impact of its generative AI products, resulting in productivity gains and faster development of new applications. “Generative AI is injecting new fuel into our already high-performing engine,” McDermott said in a statement. “This is a breakthrough moment.”
ServiceNow said in its earnings report that the company closed 168 deals worth $1 million or more in Q4, up 33% compared to Q4 2022. This includes its biggest new logo win, a large global financial services firm, with a deal valued at $10 million.
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Despite a challenging macroeconomic environment, the company’s positive results and forward-looking projections show resilience and a strategic focus on innovative technologies—particularly integrating AI into workflows. In fact, ServiceNow’s strength in customer and employee workflows has put the company on a CRM offensive. “What we’re seeing is there’s a tremendous opportunity to really take ServiceNow and squarely place it in the customer relationship management category,” McDermott said in an analyst Q&A session during the earnings call.
“When you think about front-, mid-, and back-office, and the fact that we can align all three of those things . . . we can fill in all the blanks for what the current [market] participants don’t do, especially with their integration problems,” McDermott added. “It’s just a fantastic opportunity for our customers.” McDermott also noted that the company’s net-new ACV in field service management was up more than 50% YoY, with nine of its top 20 new logo deals coming in the employee workflow space.
ServiceNow shares are up roughly 12% year-to-date and 71% over the last 12 months.
Aggressive Guidance For 2024
Looking ahead, ServiceNow provided optimistic guidance for Q1 2024.
- First-quarter subscription revenue guidance: $2.510 billion to $2.515 billion, a 24% to 24.5% increase.
- Projected full year 2024 subscription revenues: $10.555 billion to $10.575 billion, an increase of 21.5% to 22%.
- Non-GAAP operating margin for the full year 2024: 29%, above the consensus estimate of 25.6%.
- Subscription gross margins for full year 2024: 84.5%, three points above the Wall Street consensus.
- Free cash flow margin for the full year 2024: 31%, in line with estimates.
Looking Ahead
ServiceNow has raised its 2024 outlook on the back of its strong performance in 2023. The company has demonstrated impressive customer satisfaction and retention, boasting a 99% renewal rate in Q4. Service Now’s execution, consistent innovation and strong sales momentum have positioned it well for its CRM market ambitions. ServiceNow’s CRM platform integrates a unified data model, which is a big help for sharing data while eliminating silos. When CRM components are centralized in this way, users can gain insights from interconnected processes to support more informed decision making and collaboration.
ServiceNow faces a significant challenge competing with CRM giants Salesforce, Oracle and Microsoft—and, on a smaller scale, Zoho and Freshworks. However, as ServiceNow broadens its product umbrella and continues to innovate with GAI to simplify data digestion, I think the company has the potential to carve out its own space in this competitive landscape.
Related MI&S Research
ServiceNow Q4 2023 Earnings — podcast excerpt by Patrick Moorhead — January 30, 2024
RESEARCH NOTE: Microsoft (MSFT) Reports FY 2024 Q2 Earnings — by Melody Brue — February 2, 2024
