Down 40% on the Year, Is ServiceNow Stock a Buy as Its Subscription Revenue Surges 25%?

ServiceNow (NYSE: NOW) continued to present fantabulous gross maturation erstwhile the software-as-a-service (SaaS) institution reported its Q2 earnings; however, it erstwhile again wasn't capable to assistance the beaten-down stock. There has been a communicative that AI volition disrupt the bundle layer, and arsenic a result, SaaS stocks person seemingly been capable to bash nary right. As a result, ServiceNow banal is down 40% connected the year.

While its banal has been struggling, ServiceNow has shown nary signs of its maturation slowing down. The company's level is the backbone of its customers' full bundle stacks, and it's been seeing beardown maturation with some its AI and cybersecurity offerings.

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Accelerating growth

For Q2, ServiceNow's gross jumped 24% twelvemonth implicit twelvemonth to $3.99 billion, portion its adjusted net per stock (EPS) roseate 11% to $0.90. That was supra the $0.86 successful adjusted EPS and $3.93 cardinal successful gross that analysts were expecting.

Subscription gross climbed 25% twelvemonth implicit twelvemonth to $3.88 billion, portion nonrecreational services gross roseate 9% to $110 million. On a changeless currency basis, subscription gross accelerated from 19% maturation successful Q1 to that 23% growth.

ServiceNow is seeing spot successful respective areas. Its AI yearly declaration worth (ACV) surged 40% 4th implicit 4th to implicit $1 billion, and it is connected way to deed $1.5 trillion by year-end. Meanwhile, it said it already has a $1 cardinal cybersecurity concern and that it's increasing faster than immoderate different apical institution successful the space. It added that AI Control Tower, which launched conscionable this spring, is "supercharging" its information and hazard business.

The institution besides highlighted the momentum it was seeing successful lawsuit narration absorption (CRM). It said this is already a $2 cardinal ACV concern and that maturation has been accelerating.

Another intimately watched SaaS metric is remaining show obligations (RPO), which is deferred gross positive backlog growth, arsenic it tin beryllium a aboriginal gross maturation indicator. In the quarter, ServiceNow saw its RPO summation by 21% to $29 billion, portion existent RPO (cRPO) besides accrued by 21% to $13.2 billion.

Looking ahead, the institution projected its Q3 subscription gross to turn 20.5% to a scope of $3.975 cardinal to $3.98 billion. It anticipates cRPO to summation by 19.5%. For the afloat year, the institution raised its subscription gross guidance to a scope of $15.76 cardinal and $15.78 billion, representing maturation of 22.5%. That was up from anterior gross guidance of $15.735 cardinal to $15.775 billion, representing maturation of 22% to 22.5%.