ServiceNow's strong Q4 results fuelled by AI growth

Subscription revenue exceeded estimates

ServiceNow, the workflow software giant, has outperformed Wall Street predictions across the board, driven by its integration of generative AI into core software offerings.

The company's fourth-quarter results, announced on Wednesday, have set a positive tone for the upcoming fiscal year.

ServiceNow, based in Santa Clara, California, is known for its software applications that help companies organise and automate personnel and IT operations.

With businesses increasingly investing in services and products to streamline operations, ServiceNow is set to become a key player, already integrating generative-AI into products like its Now Assist feature.

Now Assist assists companies in summarising cases, providing search functionalities and enabling virtual interactions with agents.

ServiceNow's announced revenues of $2.44 billion, surpassing analysts' expectations of $2.4 billion. That was a 25% year-on-year increase from Q4 2022.

The majority - $2.37 billion - was subscription revenue, exceeding the estimated $2.32 billion.

Net income was $295 million, up 96.6% YoY from $150 million in the same period in 2022.

Current remaining performance obligations saw a notable 24% increase to $8.6 billion, exceeding the forecasted 21% gain.

ServiceNow said it concluded the quarter with 1,897 customers with more than $1 million in annual contract value, a 15% increase over the same period the previous year.

For the entire year, ServiceNow reported revenue of $8.97 billion and net income of $1.73 billion, up from $7.24 billion and $325 million, respectively.

ServiceNow's chair and CEO, Bill McDermott, attributed the success to the company's aggressive deployment of AI capabilities within its software ecosystem.

"Generative AI is injecting new fuel into our already high‑performing engine," he said.

"ServiceNow's intelligent platform for end‑to‑end digital transformation is driving massive leaps in productivity and explosive growth. This is a breakthrough moment."

As ServiceNow looks ahead to the first quarter of fiscal 2024, it anticipates subscription revenue in the range of $2.51 billion to $2.515 billion, representing growth of around 24.5% at the higher end. In contrast, Wall Street's forecast for subscription revenue is more conservative at $2.461 billion.

The company also foresees a 20% growth in remaining performance obligations, maintaining its operating margin at 29%.

For the full year of 2024, ServiceNow projects subscription revenue to rise to between $10.55 billion and $10.57 billion, indicating a 22% increase at the upper limit. This estimate also surpasses Wall Street's consensus, which pegs ServiceNow's subscription revenue at $10.474 billion.

On Wednesday, ServiceNow announced a range of strategic partnerships. The headline announcement was a five-year agreement with Amazon Web Services to offer solutions in the AWS Marketplace, as well as agreements with EY, covering AI, and Visa.

McDermott, who steered the company through 2023 without significant job cuts, reiterated the commitment to avoid layoffs in 2024. He expressed his confidence in the company's growth trajectory, emphasising ongoing hiring in engineering, sales and customer service as a testament to the positive outlook.