Companies that are looking to up their game with better technology efficiency in an increasingly complex digital world are signing up with ServiceNow (NOW), a leader in its field of cloud computing.
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The company operates in one of the fastest-growing sectors in cloud computing, called software-as-a-service. ServiceNow enables companies to improve operations and boost productivity in a range of areas.
Its software can automate routine business tasks and help employees work more efficiently, keeping them from falling behind in a digital world. Further, its cloud-based software is typically delivered online via a subscription-based revenue model. The software can be quickly configured and rapidly deployed.
The prospects for ServiceNow to grow seem strong, Morningstar analyst William Fitzsimmons wrote in a recent note to clients. Fitzsimmons raised his price target on ServiceNow to 221 from 195. He sees sales nearly doubling in just a couple of years.
"We think the company is well on its way to its goal of surpassing $4 billion in revenue by fiscal 2020 and expect it will eclipse $10 billion in revenue by fiscal 2027," Fitzsimmons wrote.
ServiceNow Stock
On Wednesday, ServiceNow stock hit an intraday high at 201 and finished the session at 200.23, a closing record. Shares have jumped 78% over the last 12 months.
ServiceNow stock has more than doubled since it started a big advance in April 2017. ServiceNow went public in 2012, pricing shares at 18.
"We see the shares as undervalued today and still see upside for ServiceNow's long-term growth story around major enterprises modernizing their IT infrastructure," Fitzsimmons wrote.
The company recently formed a partnership with Box (BOX), a provider of cloud-based business-collaboration services, to integrate their platforms.
The agreement provides employees direct access to documents and folders stored and managed in Box's cloud-based content management platform. ServiceNow stock jumped 5% on that announcement.
Double-Digit Growth
The company has delivered double-digit growth in revenue from the year-ago quarter going back more than four years. It has also delivered a steady profit stream.
For the second quarter, ServiceNow reported revenue of $631 million, up 41% from the year-ago period. Adjusted earnings of 49 cents per share was up 123% as it raised full-year guidance. The company has a market valuation of about $35 billion.
Customer retention has not been a problem for ServiceNow. Its renewal rate has been in the upper 90s over the last few years, reaching 98% in the second quarter.
Subscription revenue in the quarter of $585.3 million was up 45% from the year-ago quarter. This year, ServiceNow expects annual subscription revenue of around $2.41 billion, up more than 38% from the prior year.
"Basically, this firm is on a roll," Canaccord Genuity analyst Richard Davis wrote in his note to clients after ServiceNow reported second-quarter results. "This quarter did not alter our now six-year-old assertion that this is a special company that is likely to scale to become a significant platform."
Davis has a buy rating on ServiceNow and a price target of 210.
Making A 'Most Innovative' List
ServiceNow was founded in 2004 by Frederic Luddy. His goal was to enable regular people to route work effectively through an enterprise. Luddy stepped down as chief executive in 2011 to serve as chief product officer, a role he held until 2017. He is now chairman.
The company recently placed first on a Forbes list of the world's most innovative companies, with Luddy on the cover of the special issue. It was the first year ServiceNow was eligible for the list.
Following ServiceNow on that list were Workday (WDAY) and Salesforce.com (CRM), two companies that also use a software-as-a-service business model to enhance business operations. Another closely watched leader in this field is Atlassian (TEAM).
ServiceNow is on the IBD 50 list of top-performing companies, with an IBD Composite Rating of 99, the highest possible.
The company has three robust emerging product categories, in the field of human resources, security and customer service.
ServiceNow has been profitable for the past three years. The Santa Clara, Calif.-based company is currently targeting $4 billion in annual revenue by 2020. Its customers include companies in financial services and consumer products, health care and technology.
In The Early Innings
The company's current CEO, John Donahoe, formerly held the same job at eBay (EBAY). He took over at ServiceNow 17 months ago.
During a conference call with analysts, Donahoe was asked "What inning (are we) at in terms of penetration in your base from all your new apps?"
Donahoe replied by first noting that cloud computing is still in the early innings of use by businesses, governments and institutions.
"So I think we're in the third inning of the cloud tailwind," Donahoe said on the call.
"And therefore, when we look at our share of wallet, so to speak, a share of what we think we can grow in many of these customers, I think, we're a quarter of the way there, max," he said. "More like maybe 20%."
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The post ServiceNow Finds Seemingly Limitless Growth In Cloud-Based World appeared first on Investor's Business Daily.
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