The News: On January 24, ServiceNow announced its financial results for fourth quarter (Q4), ending December 31, 2023, with total non-generally accepted accounting principles (non-GAAP) revenue of $2.4 billion, representing year-over-year (YoY) growth of 24%. For the full year (FY) 2023, ServiceNow posted non-GAAP total revenue of $8.94 billion, representing YoY growth of 23.5%. The company credits its strong quarterly and year-end performance to the infusion of generative AI within its Now platform, an increase in subscription revenue, and strong growth in the number of customers with an annual contract value (ACV) of more than $1 million.
By the numbers:
- Q4 2023 earnings per share (EPS) of $3.11, besting the $2.28 EPS from a year ago, and beating consensus estimates of $2.77
- Q4 non-GAAP subscription revenue of $2.33 billion, representing 25.5% YoY growth in constant currency
- Q4 non-GAAP current remaining performance obligations (cRPO) of $8.52 billion, representing 23% YoY growth in constant currency
- Q4 non-GAAP operating income of $717 million, resulting in a non-GAAP operating margin over 29%
- 168 deals completed in Q4 with over $1 million in net new annual contract value (NNACV), up 33% YoY
- FY non-GAAP 2023 subscription revenue of $8.65 billion, representing 25.5% YoY growth in constant currency
- A 30% increase in deals greater than $1 million in NNACV for FY 2023
You can read the full earnings release at ServiceNow’s web site.
ServiceNow Q4 2023 Earnings Exceed Guidance, Driven by Focus on Generative AI
Analyst Take: ServiceNow announced strong financial results for Q4 and FY 2023, which ended December 31, 2023, surpassing the company’s financial guidance across all Q4 2023 topline growth and profitability metrics. Notably, the company saw healthy increases in its Q4 subscription revenue, which increased by 25.5% YoY to reach $2.33 billion (non-GAAP), with total non-GAAP subscription revenue for FY 2023 reaching $8.65 billion.
According to the company, ServiceNow reported in Q4 2023 a record 10 new customers signing deals over $1 million in NNACV, including a $10 million win with a large global financial services firm, the largest new customer logo in the company’s history. Overall, the company has more than 8,100 customers, including 1,897 customers with an NNACV of more than $1 million, and 168 deals over $1 million in net new ACV, marking a 33% increase from the previous year.
ServiceNow ended Q4 2023 with a 99% renewal rate, and the strongest NNACV contribution for any new product family with the introduction of Plus SKUs, according to Gina Mastantuono, ServiceNow’s CFO. Moreover, non-GAAP operating margin exceeded 29%, and free cash flow margin reached an impressive 55%.
Other positive metrics from Q4 include customer workflows crossing the $1 billion mark in ACV, resulting in three AI workflow-driven segments (customer, technology, and creator workflows) generating more than $1 billion in ACV in Q4. In addition, in the first full quarter since the launch of its Now Assist generative AI portfolio, ServiceNow saw the largest NNACV contribution for the first quarter of any new product family release.
Leaning on Generative AI and Partnerships to Fuel Growth
ServiceNow is incorporating AI workflows across its entire Now platform and is infusing it within its technology, customer and employee, and creator workflows. This approach has created a strong demand for its products across the board, reflected in the company’s cRPO, or contract revenue, which will be recognized as revenue in the next 12 months. cRPO reached a non-GAAP reported $8.52 billion as of December 31, 2023, representing 23% YoY growth.
In the quarter, the company added to its AI-related partnerships, including a strategic partnership to integrate ServiceNow advanced analytics and enhanced AI capabilities into DXC’s Platform XTM. ServiceNow also announced a 5‑year Strategic Collaboration Agreement with Amazon Web Services (AWS) to offer the ServiceNow Platform and full suite of solutions in the AWS Marketplace and to co‑develop and launch industry‑specific, AI-powered workflows and applications.
The focus on industry-specific AI-powered applications builds on the growing trend in the market to utilize AI technology that is purpose-built for specific use cases, leveraging industry-specific data to ensure relevance, accuracy, and fast time-to-value and ROI. Further, ServiceNow announced its acquisition of task mining company UltimateSuite to bolster automation and AI capabilities, helping customers identify process bottlenecks and drive stronger operational efficiencies.
ServiceNow also extended its efforts to support responsible use of AI by joining the AI Alliance, a consortium launched by IBM and Meta to advance open, safe, and responsible AI by focusing on AI education, research, development and deployment, and governance issues.
ServiceNow Continuing 2024 Financial Guidance
To reflect the momentum from 2023, ServiceNow announced it is raising FY 2024 subscription revenue guidance to a range of $10.555 billion to $10.575 billion, representing 21.5% to 22% YoY growth. According to the company, the 2024 guidance raise partially reflects the early success of the company’s generative AI products, which is accelerating ServiceNow’s pipeline.
The company also announced FY 2024 non-GAAP subscription gross margin guidance of 84.5%, which is flat compared with the previous guidance. ServiceNow also released FY 2024 non-GAAP operating margin guidance of 29%, an increase of approximately 150 basis points, and non-GAAP operating free cash flow margin guidance of 31%, an increase of approximately 50 basis points.
Strong Implementation of AI and a Focus on Solving Business Challenges
With the incorporation of AI across industry-specific workflows and a focus on solving specific business challenges, ServiceNow is rapidly being viewed as a leader in the workflow solutions market. The company has done a solid job of convincing customers to embrace generative AI, evidenced in the strong performance of its premium SKUs.
ServiceNow’s commitment to strategically investing in other technologies, such as the task mining capabilities offered by UltimateSuite, should help the company maintain its focus on providing greater process efficiency across workflows. The partnership deal signed with Amazon also should help expand its reach with new prospects, further expanding the potential for new logo wins.
Daniel Newman provides insights into the latest ServiceNow earnings on X:
Here we go: My extended thoughts on @ServiceNow Q4 and FY results.
ServiceNow capped off a stellar Q4, exceeding key metrics and demonstrating strong momentum in the critical area of AI implementation. Had the chance to chat with CEO @BillRMcDermott, he reiterated that the… pic.twitter.com/2v6pLAiWCP
— Daniel Newman (@danielnewmanUV) January 24, 2024
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.
