The News: ServiceNow announced strong financial results for its first quarter (Q1) 2024, which ended March 31, 2024, once again outperforming its guidance across all topline and profitability metrics. The company posted total revenue of $2.6 billion, reflecting a 24% increase compared with the same period a year ago, and a 24% year-over-year (YoY) increase in constant currency (CC).
In its second full quarter since launch, generative AI (GenAI) adoption remained strong, and net-new annual contract value (ACV) for the company’s Now Assist GenAI-powered solution continues to track ahead of all previous product launches. ServiceNow continues to strengthen its position as the AI platform for business transformation, and CEO Bill McDermott noted on the earnings conference call that AI is continuing to fuel performance across each of its key businesses as it drives tangible value for customers.
By the numbers:
- Subscription Revenue: $2.52 billion in Q1 2024, reflecting 25% YoY growth and 24.5% YoY growth in CC
- Total Revenue: $2.6 billion in Q1 2024, for 24% YoY growth
- Current Remaining Performance Obligations (cRPO): $8.45 billion as of Q1 2024, a 21% YoY growth
- Large Transactions: Eight transactions over $5 million in net new ACV in Q1 2024, doubling YoY
- High-Value Customers: 1,933 customers with more than $1 million in ACV, a 15% YoY growth
- Q2 2024 Guidance: Subscription revenue expected to be between $2.525 billion and $2.530 billion, with 21.5% to 22% YoY growth and 22% YoY growth in CC
- Non-Generally Accepted Accounting Principles (Non-GAAP) Net Income: $707 million, or $3.41 per share, up from $483 million, or $2.37 per share, for the same period last year
- Full-Year 2024 Guidance: Subscription revenue expected to range between $10.56 billion and $10.575 billion, representing 21.5% to 22% YoY growth and 21.5% YoY growth in CC
You can read the full earnings release on the ServiceNow website.
ServiceNow Posts Strong Q1, Driven by Big Deals and Subscriptions
Analyst Take: ServiceNow’s financial performance for Q1 2024 showcases a robust growth trajectory, underpinned by significant YoY improvements across key financial metrics. The company reported subscription revenue of $2.5 billion in Q1 2024, marking a 25% increase from the previous year, with CC growth of 24.5%. Total revenue for the quarter stood at $2.6 billion, representing YoY growth of 24%, fueled by large deals, an increase in net new annual contract values (NNACV), and the incorporation of AI throughout the company’s platform. Notably, the company’s GenAI products were included in seven of the ServiceNow’s top 10 deals, and the company closed seven deals over $1 million in ACV during the quarter.
cRPO, which as of Q1 2024 reached $8.5 billion, grew 21% YoY. This growth in cRPO reflects the company’s continued strength over the coming quarters, bolstering its financial stability in an uncertain purchasing environment.
ServiceNow also highlighted a significant increase in large transactions, with eight transactions over $5 million in net new ACV in Q1 2024, doubling the number from the previous year. The company’s customer base with more than $1 million in ACV grew by 15% YoY, reaching a total of 1,933 customers. The number of customers paying ServiceNow more than $20 million per year or more grew by more than 50% YoY.
This expansion in both large transactions and high-value customers is indicative of ServiceNow’s strong market position and its ability to attract and retain significant enterprise clients. According to McDermott, these deals are being fueled in part by ServiceNow’s Pro Plus generative AI-capable versions of its apps, which are the fastest-selling offerings in the company’s history.
Leveraging Strategic Partnerships to Drive Future Growth
According to the company, ServiceNow has expanded its partnership with Microsoft to include new GenAI capabilities, while integrating its Now Assist AI and Copilot into employee experiences. Additional GenAI partnerships include Equinix’s deployment of Now Assist AI for HR Workflows for agents, a strategic partnership with IBM to drive more productivity on IBM watson, and Bank of New York Mellon’s use of ServiceNow’s AI and ITSM products to drive additional productivity and value for its clients.
Ultimately, McDermott stressed that organizations are deriving value from ServiceNow by leveraging the company’s platform and applications for process optimization, which can be applied across a wide range of sales, marketing, service, and support use cases, as well as more specific complex workflows that enable workers to eliminate switching between various applications. The key value with ServiceNow’s use of AI, according to McDermott, is that it is embedded across all workflows, enabling greater productivity and efficiency both within ServiceNow and via integrations with other third-party applications.
Strong Growth in Verticals and Impressive Renewal Rates
From an industry perspective, the company has been able to drive deals within technology, media, and telecom, as these categories grew net new ACV more than 100% on a YoY basis, according to the company. ServiceNow also posted an impressive 98% renewal rate, and the company’s platform-based selling approach led to more multiproduct deals, with 15 of the company’s top 20 deals included seven or more products SKUs. These two elements are indicative of a company that is building stickiness within organizations, which reduces the likelihood of short-term churn, and helps to drive greater utilization across a wider range of employee types and functions.
Future Guidance and Outlook
Looking ahead, ServiceNow provided guidance for Q2 2024, with subscription revenue expected to be between $2.52 billion and $2.53 billion, translating to a YoY growth rate of 21.5% to 22%, or at a CC growth rate of 22%. The company also anticipates a 20.5% growth in cRPO for Q2 2024, maintaining the growth rate in CC. For the full year 2024, ServiceNow expects subscription revenue to range between $10.56 billion and $10.58 billion, representing 21.5% to 22% YoY growth, with the growth rate consistent at 21.5% in CC.
In summary, ServiceNow’s Q1 2024 performance demonstrates strong growth and operational efficiency, with significant YoY increases in subscription revenue, total revenue, and cRPO. The company’s guidance for Q2 and full year 2024 reflects continued optimism in its growth trajectory and financial health.
We believe that ServiceNow remains well positioned over the next several quarters, as its focus on embedding and incorporating GenAI across a wide range of use cases and throughout its entire Now Assist platform dovetails with the industry’s demand for software that delivers friction-free, intuitive, and seamless experiences across all workflows. The company’s ability to continue to deepen its relationships with large enterprises reflects the realization that a platform-based approach to deploying applications, embedded with generative and predictive AI, is resonating with the market.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discusses ServiceNow’s earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other Insights from The Futurum Group:
ServiceNow to Acquire Task Mining Company UltimateSuite
ServiceNow Announces Strategic Collaboration Agreement with AWS
ServiceNow Launches Expansion to Now Assist Generative AI Offerings
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
Keith has over 25 years of experience in research, marketing, and consulting-based fields.
He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.
In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.
He is a member of the Association of Independent Information Professionals (AIIP).
Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.
