Cloud Computing: What happened
As the chart below shows, the gains came largely from two strong earnings reports during the first half of the year; in the second half, the stock’s growth cooled off along with a broader pullback in SaaS (software-as-a-service) stocks.
Cloud Computing: So what
After a modest bump to start the year on a broader recovery in stocks, ServiceNow shares soared on its fourth-quarter earnings report, climbing 13.4% on Jan. 31. The company said subscription revenue rose 33% to $666 million, and overall revenue rose 30% to $715.4 million. Wall Street was also impressed with 38% growth in subscription billings, to $952 million, a favorable sign for future revenue growth. On the bottom line, adjusted earnings per share jumped 120% to $0.77, easily beating estimates of $0.63.
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The stock climbed steadily from there over the next three months before jumping again on ServiceNow’s first-quarter earnings report, as shares gained 7.4% on April 25. Top-line growth accelerated in the period; revenue rose 34% to $788.9 million, on a 36% increase in subscription revenue. On the bottom line, adjusted earnings per share increased from $0.56 to $0.67, ahead of estimates of $0.54. ServiceNow’s business with the federal government surged in the quarter, helping pace the gains.
Shares peaked in July, shortly before the stock pulled back following its second-quarter earnings report, despite another round of strong growth. In October, shares momentarily plunged on an analyst downgrade, and then as CEO John Donahoe was named as the next CEO of Nike. However, the stock quickly bounced back on a strong third-quarter earnings report.
Cloud Computing: Now what
When Donahoe’s departure was announced, ServiceNow said he would be replaced by the end of 2019 by Bill McDermott. McDermott had served as the CEO of SAP for the previous five years, guiding that company’s transition to the cloud.
Meanwhile, ServiceNow shares have gotten 2020 off to a solid start, already climbing 8%. With subscriptions growing and profitability improving, the company looks like it’s well-positioned for further growth, though its valuation remains steep.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of ServiceNow, Inc. The Motley Fool has a disclosure policy.