Workflow software company ServiceNow Inc. posted stellar fourth-quarter results today, while its guidance for the first quarter and full year came in well ahead of estimates.

Officials said the strong results were driven at least partly by the company’s aggressive rollout of artificial intelligence capabilities within its core software offerings.

ServiceNow Chairman and Chief Executive Bill McDermott (pictured) said the company had delivered yet another outstanding quarter. “Generative AI is injecting new fuel into our already high‑performing engine,” he said. “ServiceNow’s intelligent platform for end‑to‑end digital transformation is driving massive leaps in productivity and explosive growth. This is a breakthrough moment.”

The company delivered results that came in ahead of Wall Street’s guidance on almost every metric, with subscription revenue coming to $2.365 billion, up 27% from a year earlier and ahead of the forecast of $2.32 billion. Total revenue came to $2.437 billion, beating the consensus estimate of $2.402 billion.

Earnings before certain costs such as stock compensation came to $3.11 per share, beating the consensus of $2.78 by a comfortable margin. The company’s adjusted operating margin was 29%, ahead of the Street’s forecast of 27.5%. Finally, current remaining performance obligations came to $8.6 billion, up 24%, higher than the forecast of a 21% gain.

McDermott told Barron’s in an interview that the company is getting close to hitting the $10 billion annual subscription revenue run-rate milestone, thanks to the incorporation of so many AI features in its products. He added that many of the new features were rolled out in September, and have already delivered a material impact on the company’s bottom line. “We’re seeing the largest net new contract contribution of any product we have ever introduced,” he said.

AI is advantageous for ServiceNow’s customers in many ways, for example by delivering a 52% increase in the speed it takes them to design and build new applications, the CEO said. He said the technology will drive further growth for ServiceNow too, pointing to research that shows how tech customers are expected to spend $3 trillion on generative AI products between now and 2027. He added that 100% of corporate CEOs in a recent survey indicated they are planning to invest in generative AI in future, and that 70% will either raise more capital or reallocate money from other areas to fund AI initiatives.

“The productivity AI delivers is undeniable,” he said. “The savings will be incredible.”

Rebecca Wettemann, an analyst at Valoir, said ServiceNow’s growth shows the early results it has gotten from its AI investments, in particular with the ServiceNow Assist capabilities that were integrated into various products last year. “ServiceNow has differentiated its AI approach, focusing on both large language models and domain-specific models,” she said. “This means it has the ability to take action on AI-generated results through workflows, and connect the front, middle and back office.”

Looking to the first quarter of fiscal 2024, ServiceNow is eying subscription revenue of $2.51 billion to $2.515 billion, representing growth of 24.5% at the higher end of that range. In contrast, Wall Street is forecasting subscription revenue of just $2.461 billion. ServiceNow also sees remaining performance obligations growing by 20%, while its operating margin should remain at 29%.

For the full year, ServiceNow sees subscription revenue rising to between $10.555 billion and $10.575 billion, up by 22% at the maximum of that range. Wall Street’s consensus estimate pegs ServiceNow’s subscription revenue at $10.474 billion.

Constellation Research Inc. analyst Holger Mueller said ServiceNow is once again setting the pace for software-as-a-service vendors, and is very likely to break the $10 billion annual revenue barrier in its next full year. “ServiceNow’s sweet spot in helping enterprises connect their different automation silos to improve businesses processes is far from being exhausted and is unrivaled by the competition,” the analyst said, explaining the main reason for the company’s ongoing growth.

“Customers and investors will be looking closely at ServiceNow in the new financial year in order to try and understand just how beneficial or detrimental generative AI services will be,” Mueller added. “For now though, Bill McDermott and team will be focused on breaking that $10 billion revenue milestone, and they deserve kudos for those efforts.”

Despite the positive numbers, ServiceNow’s stock was off 0.5% in late trading. The stock has enjoyed a good start to the year, though, and is currently up 9% in the year to date. Overall, the stock has gained an impressive 73% in the last 12 months.

Photo: SAP SE