Why ServiceNow Inc. Stock Soared Today

By Markets Fool.com

Image source: ServiceNow Inc.

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What happened

Shares of ServiceNow Inc. (NYSE: NOW)were up 10.9% as of 1:30 p.m. EDT after the enterprise cloud company released stronger-than-expected third-quarter 2016 results.

So what

Quarterly revenue jumped 37% year over year, to $357.7 million, while billings increased 41%, to $404.3 million. Based on generally accepted accounting principles (GAAP), that translated to a net loss of $36.3 million, or $0.22 per share. On an adjusted (non-GAAP) basis, which adds perspective by excluding items like stock-based compensation, ServiceNow increased net income 58.2% year over year, to $39.5 million, while adjusted net income per diluted share grew 53.3%, to $0.23.

By comparison, ServiceNow's guidance provided last quarter told investors to expect revenue between $350 million and $354 million and billings between $380 million and $385 million.Analysts, on average, predicted the company would only achieve adjusted earnings of $0.21 per diluted share.

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ServiceNow CEO Frank Slootman added, "We are very pleased with the third quarter results. The company saw broad based contribution and large deal activity across all major sales regions and product segments."

Now what

Looking to the fourth quarter, ServiceNow expects revenue between $376 million and $381 million, the midpoint of which is also well ahead of analysts' consensus estimates for fourth-quarter revenue of $377.8 million.

In the end, this is a fairly cut-and-dried quarterly beat from ServiceNow as it continues to forsake GAAP profitability in favor of investing to achieve top-line growth -- a common approach by fast-growing tech companies in the early stages of their respective stories. And even with the stock trading near an all-time high as of this writing, it's hard to blame investors for so aggressively bidding up ServiceNow shares today.

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Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.