ServiceNow forecasts weak quarterly revenue as businesses trim spending

By Thomson Reuters Apr 24, 2024 | 3:18 PM

By Akash Sriram

(Reuters) -ServiceNow on Wednesday forecast second-quarter subscription revenue below market expectation as businesses spend cautiously in a tough economy, sending the cloud software provider’s shares down nearly 5% in trading after the bell.

The company has been deploying GenAI technologies in its products as businesses look to optimize and automate operations using such tools.

It expects subscription revenue between $2.525 billion and $2.530 billion in the second quarter, below estimates of $2.54 billion, according to LSEG data.

“Ten of the top 20 deals of the company have been distinguished with GenAI in mind; it is starting to show, because we have deals with $10 million and more grow 300% year over year,” CEO Bill McDermott told Reuters.

Strong adoption of GenAI has also driven gross margin higher, he added. Total gross margin stood at 80% in the first quarter, compared with 79%, a year ago.

ServiceNow posted a profit of $347 million, or $1.67 per share, for the quarter ended March 31, compared with $150 million, or 73 cents per share, a year ago.

The company provides software for use by technical support staff inside big businesses. ServiceNow said last month it used Nvidia’s tools to create a “copilot” to help solve corporate IT problems.

The company, which has 1,933 clients with more than $1 million in annual contract value, counts Zoom Video Communication, Standard Chartered Bank and Delta Air Lines among its customers.

The company’s quarterly revenue jumped 24% to $2.60 billion from a year earlier. Analysts, on average, expected revenue of $2.59 billion.

(Reporting by Akash Sriram and Jaspreet Singh in Bengaluru; Editing by Shailesh Kuber)