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The ServiceNow Inc. express continues to rumble along: The maker of an expanding portfolio of workflow automation software today announced first-quarter revenue and profit that easily beat Wall Street estimates.

Revenue growth continued at a 40 percent pace, even as the company sailed past a $2 billion annual run rate toward a $4 billion 2020 target that analysts say is within reach. It was the third quarter in the last four that the company has beaten forecasts.

Subscription revenue of $543.3 million grew 40 percent and total sales of $589.2 million were up 37 percent, well ahead of consensus estimates of $573.5 million. Earnings per share of 56 cents toasted market-watchers’ estimates of 37 cents.

Particularly notable was the company’s momentum in closing large deals. ServiceNow completed 21 transactions of more than $1 million in net new annual value in the first quarter and said 52 customers are now doing more than $5 million a year in business, up 52 percent from a year earlier.

The company initially pleased investors buy raising its full-year subscription guidance to between $2.4 billion and $2.5 billion from earlier forecasts of $2.35 billion to $2.37 billion, a 35 percent growth rate. It also hiked full-year revenue estimates to $2.84 billion.

Although shareholders initially bid up the company stock by about $2 a share in after-hours trading, the price fell about a half-point following the earnings call. Update: Investors woke up in a better mood, as shares Thursday morning were rising more than 5 percent. The initial decline in share price was probably due to investor confusion about the effect of currency on earnings, said Abhey Lamba, senior technology analyst at Mizuho Securities USA Inc. “As people looked and saw there was more positive upside, the stock reacted accordingly,” he said.

About the only negative in the report was that ServiceNow maintained margin guidance of 20 percent for the year. Some analysts questioned why the estimated wasn’t raised, but executives pointed out that margins held steady on a higher revenue forecast.

The company also said it plans to buy VendorHawk Inc., developer of a cloud-based application that helps companies choose software-as-a-service suppliers. The company didn’t disclose the value of the all-cash deal, but Chief Financial Officer Michael Scarpelli characterized it as “immaterial.”

A better class of customer

ServiceNow executives said the company’s continued strong growth is a function of increasing board-level interest in process automation enabled by software. “The reason software is such a growth industry is because companies are automating things they never automated before,” said Chief Executive John Donahoe (pictured). “In the medium- to longer-term, we see significant expansion upside as we increasingly automate workflows within enterprises.”

That opinion appears to be validated by the expanding amount of business the company is getting from existing customers. ServiceNow recorded 43 percent growth in the number of customer paying more than $1 million a year for its software, and renewal rates are holding steady at 98 percent. Executives said the company is also diversifying its revenue base, with nearly half of new deals coming from outside North America. And it’s reducing its emphasis on Global 2000 customers as it targets what it sees as untapped markets in mid-sized businesses and government agencies.

The reduced emphasis on public corporate clients shouldn’t be seen as a sign of weakness as much as an indication that ServiceNow is expanding its business, Lamba said.”Their focus was on large companies to get them to $4 billion in revenue,” he said. “Now they’re expanding to focus on large organizations of all kinds, whether public or private.”

ServiceNow originally focused exclusively on information technology process automation, but executives said they are increasingly hearing from C-level customers who want to apply the same principles to other areas of business. ServiceNow has responded by diversifying its product line into human resources, customer service and demand management.

“CIOs see the power of our platform and how it can transform not just IT processes, but processes that cut across other functions,” Donahoe said. “The decision isn’t whether to rip out an old solution and put in ServiceNow. The decision is about doing something they’ve never done before.”

The company is particularly strong in environments in which workflow processes tie into back-end IT systems, Lamba said. ServiceNow fares less against competitors like Salesforce.com Inc. in closed-loop workflows within individual departments. “If it ties back to IT infrastructure, they have an advantage,” he said.

Wall Street remains generally bullish. TipRanks Ltd.’s poll of 19 financial analysts reports a “strong buy” consensus. In a report published shortly before the earnings announcement, Mizuho Financial Group Inc. technology analyst Abhey Lamba predicted total ServiceNow revenue of $575 million, but said an even stronger performance was possible based on strong subscription revenue and billings. He set a target price of $190 per share, which would represent a nearly 45 percent increase this year.

David Vellante, chief analyst at SiliconANGLE sister company Wikibon, wasn’t surprised by the strong results and bullish forecast. “It kept margin guidance for the year in line despite rosier outlook, but to me that’s just NOW being conservative,” he said. “Fundamentals are still great for this company.”

Photo: SiliconANGLE