ServiceNow Surges on Strong Sales From Expanded Product Line

(Bloomberg) — ServiceNow Inc. jumped the most in almost 21 months after reporting better-than-expected quarterly sales and bookings that signaled strong customer demand for its broad suite of software tools.

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Second-quarter subscription sales, which account for the bulk of the company’s revenue, increased 23% to $2.54 billion, ServiceNow said Wednesday in a statement. Current remaining performance obligation, a measure of booked sales, increased 22% in the period ending June 30.

The Santa Clara, California-based company makes applications that help companies organize and automate their personnel and information technology operations. It’s working to expand beyond its roots to uses such as customer service. Late last year, ServiceNow released a new artificial intelligence-oriented tier of its product.

In an interview, Chief Executive Officer Bill McDermott said that adoption of the company’s generative AI-oriented products is helping boost earnings. “I doubt you could have had these extraordinary results without generative AI,” he said.

The shares gained as much as 16% to $845.39 Thursday in New York, the biggest intraday increase since October 2022 and reaching a record high. The stock had increased just 3.4% this year through Wednesday’s close, lagging behind many other technology companies.

The results “should provide some relief for the stock and the broader software group, given questions on the software spending environment, following choppy results in the April quarter,” wrote Brad Sills, an analyst at Bank of America Corp.

ServiceNow gave an outlook for the current quarter that was just short of estimates. Subscription sales will be about $2.66 billion in the period ending in September, shy of the $2.68 billion predicted by analysts. For the fiscal year ending in December, the company raised the subscription revenue growth outlook by about half a percentage point.

Samad Samana, an analyst at Jefferies, said the second-quarter results were surprisingly strong and the outlook suggests “momentum in the business remains healthy.”

ServiceNow also announced that one of its most prominent executives, President and Chief Operating Officer CJ Desai, will leave the company effective immediately after a complaint into the sales process for a government contract and the hiring of a former US Army technology leader. McDermott said the hiring controversy was an “isolated incident,” and wouldn’t affect results or government contracts.

Expanding its product line has brought ServiceNow into more direct competition with peers such as Salesforce Inc. and Workday Inc. Earlier Wednesday, those two companies announced a partnership to build an AI tool that works between their applications.

“It’s not surprising that when you have companies that service specific domains, that they would try to team up to combat the fact that ServiceNow goes through all domains in a company,” McDermott said, reacting to his rivals’ announcement. He added that ServiceNow is seeing “substantial uplift” in their customer service and employee-oriented solutions, which compete with Salesforce and Workday.