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ServiceNow Stock Jump Puts Software Slump Mostly In The Dump

Realizing that more big customers than ever are paying bigger dollars for ServiceNow ( NOW ) software in the cloud, investors bought up ServiceNow stock Thursday, healing much of the pain that they endured through the infamous Software Slump of January and February. ServiceNow stock shot up 18% in morning trade on the stock market today before easing back to a 15% gain, near 74.50, Thursday afternoon. It’s 18% off a record high at 91.28 set Dec. 4, but it’s more than 60% up from the nearly two-year low of 46 reached Feb. 8. ServiceNow late Wednesday issued first-quarter earnings and sales that exceeded Wall Street estimates. Shares of rival  SAP ( SAP ) were down a fraction Thursday afternoon, but  Salesforce.com ( CRM ) stock was up 1%. “We now have 249 customers each paying us more than $1 million in annualized contract value, an increase of 48% year over year,” ServiceNow CFO Michael Scarpelli said in the company’s earnings release. “We also landed a record 13 upsells in the (first) quarter, each with an annualized contract value greater than $1 million.” Those results helped drive Q1 revenue up 44% to $350.9 million vs. the $301 million expected by analysts polled by Thomson Reuters. Non-GAAP (generally accepted accounting principles) EPS rose to nine cents from a penny in the year-earlier quarter. Analysts had expected seven cents. Excluded from the adjusted earnings, among other things, were $270 million in legal expenses to settle patent infringement lawsuits that BMC Software and Hewlett Packard Enterprise ( HPE ) brought against ServiceNow. It brought the bottom line to a $333 million net loss vs. $58 million lost a year earlier, or a $2.06 GAAP loss per share vs. a 38-cent loss in 2015’s Q1. Analysts and investors prefer to concentrate on the apples-to-apples non-GAAP comparisons. William Blair analyst Justin Furby reiterated his firm’s outperform rating on ServiceNow without a price target, though he said, “The stock can double (or more)” over the next five years. “All other first-quarter metrics (revenue, non-GAAP operating margin, non-GAAP EPS, deferred revenue, free cash flow) came in ahead of guidance and the Street, and the company’s second-quarter billings outlook of 31%-33% growth (37%-39% subscription billings growth) bracketed the consensus view of 32%,” said Furby in a Thursday research note. Canaccord Genuity analyst Richard Davis maintained a buy rating with a 90 price target on ServiceNow. “We believe full-year guidance is likely conservative and sets the company up to outperform for the remainder of the year,” he said in a Thursday note. FBN Securities analyst Shebly Seyrafi raised his price target on ServiceNow stock to 90 from 80.

No Slouch, But Manhattan Associates’ EPS Growth May Have Eased To 15%

Investors are hoping fast-growing supply-chain software developer Manhattan Associates ( MANH ) will say something Tuesday to help re-accelerate growth. Not that Manhattan is any slouch, but the 15% improvement in first-quarter earnings that it’s expected to disclose after Tuesday’s market close would be its slowest year-to-year growth rate in 15 quarters. Six of those 15 quarters have topped 30% earnings growth, including Q3 and Q4 2015, and all but two of the last 15 topped 20%. While still 25% off a record high 77.75 set Dec. 7, Manhattan Associates stock was up more than 1.5% in afternoon trading in the stock market today , near 58 and 31% above its 44.27 nadir hit Feb. 8 during this year’s software slump. Most of its bigger enterprise-software rivals have been faring better, with the biggest, Oracle ( ORCL ) up fractionally, 9% off recent highs. Enterprise software maker SAP ( SAP ) was also up fractionally and just 2% off a recent high, while Salesforce.com ( CRM ) was up more than 1%, just 7% off its recent high. The entire IBD Computer Software-Enterprise industry group, which does not include Oracle as a member, is about 9% off its Nov. 9 high. Oracle is a member of IBD’s Computer Software-Database group, which is 22% off an August high. Among the re-accelerants that management might discuss Tuesday is just how much its new distribution management (DM) tools announced last week might contribute to revenue. Its new DM Mobile platform gives users “the ability to address any operational issues, including inventory issues, directly from the floor via their tablet devices, increasing mobility and driving productivity and efficiency,” the company announced at the MODEX supply-chain management show in Atlanta. On Feb. 3, just before Manhattan stock tanked more than 20% in three trading sessions, William Blair analyst Matthew Pfau said in a research note that “the 2016 EPS guidance that management provided is conservative, and through a combination of revenue growth, operating expense leverage and share repurchases we expect Manhattan to continue to increase its EPS in excess of 15% over the next several years. “We recommend shares to long-term investors looking for a midcap software company with a strong record of execution and sustainable earnings growth opportunity.” By consensus, Pfau and four other Wall Street analysts polled by Thomson Reuters expect Manhattan to deliver Q1 earnings up 15% to 39 cents per share minus items, on revenue up 8.9% to $145.5 million. That would be a record quarter in hard dollars, but the year-over-year rate would be only slightly better than Q4’s 8% growth to $141 million and only the third time in 15 quarters that its sales growth had slipped into single digits. Over the past five years, it’s averaged 14% sales growth annually and 15% earnings growth. Manhattan guided full 2016 non-GAAP EPS to a range of $1.69 to $1.72, the midpoint slightly below analysts’ $1.71 consensus, or up 12.5% from 2015. It guided 2016 sales to a range of $609 million to $615 million, its midpoint coinciding with analysts’ $612 million consensus, up 10% from 2015. “Although the retail environment remains challenging, Manhattan has not seen a material change in IT purchasing trends from retails and the pipeline is still strong,” Pfau said. “However, we believe that management’s guidance takes into account a cautious retail IT spending environment for 2016.” While Manhattan’s core software manages warehouse inventory, its visualization tools allow users to see everything from the manufacturer’s supplies to the consumer’s purchase at the checkout counter. Pfau noted that 70% of its total license revenue comes from its basic warehouse management systems (WMS) license revenue, so WMS is a “leading indicator for sales of Manhattan’s other solutions.” License revenue, however, amounts to only 14% of its total revenue. Most of its sales, 77%, come from services related to its software licenses. “We will continue to be a serial investor in innovation,” Manhattan CEO Eddie Capel said in February.  

ServiceNow Settles Patent Cases With BMC, HPE For $270 Million

Workflow software developer ServiceNow ( NOW ) lightened its wallet by $270 million, then lightened its stock price Thursday. ServiceNow stock stumbled 3% after the bell in the stock market today before recovering. It was down a fraction, above 63, in afternoon trading Thursday, 30% off its record high of 91.28, set Dec. 4. ServiceNow went public in December 2012 at 18. Investors seemed none too pleased with the size of ServiceNow’s disclosure to the Securities and Exchange Commission, filed after Wednesday’s close, to settle patent infringement litigation with BMC Software and Hewlett Packard Enterprise ( HPE ). ServiceNow had disclosed in early March that at least some settlement was imminent . Hewlett Packard Enterprise stock was down more than 1% Thursday afternoon. ServiceNow rivals SAP ( SAP ) and Salesforce.com ( CRM ) were both up a fraction, with SAP just 2% off recent highs and Salesforce 8% off an all-time high 81.24 set March 31. ServiceNow, which delivers its software via the cloud, said that it is taking the $270 million charge in its first quarter, which it’s slated to report Wednesday after the market close. “The settlement terms are rather significant, at over one-third of ServiceNow’s net cash balance as of Dec. 31, 2015, but still represent less than one year’s free cash flow (management has guided for $325 million of free cash flow in 2016), and both management and investors should welcome having these lawsuits in the rearview mirror,” said William Blair analyst Justin Furby in a research note Thursday. He said, “The company should benefit from the removal of ongoing legal fees that have been included in non-GAAP expenses.” Furby said that he won’t be changing his Q1 estimates for ServiceNow but will look for “additional detail” on Wednesday. ServiceNow Q1 Expected To Show Earnings Growth Analysts polled by Thomson Reuters expected ServiceNow to report earnings per share minus items of seven cents, up from a penny in the year-earlier quarter. Revenue is expected to rise 42% to $301 million. With revenue rising 47% for 2015, the company topped $1 billion in sales for the first time last year, contributing to its three-year 60% sales growth rate. RBC Capital Management analyst Matthew Hedberg estimated that the settlement would cost $1.50 per share off ServiceNow’s presettlement cash balance of $7 per share. Hedberg, who still rates ServiceNow a “top pick,” said in a Thursday research note, “There could be slight upside to forward margin expectations given an early resolution, as management likely planned for a longer trial and additional expenses.” He noted “no future royalty payments” from the settlements. “Overall, we are glad to put this issue to bed and believe focus can now return fully to execution, which had been less than ideal in 2015,” he said. Despite its fast growth, ServiceNow experienced growing pains in 2015, so analysts will look for clues that might firm up expectations for 2016. For the year, Wall Street expects EPS of 60 cents minus items on sales of $1.36 billion, up from 40 cents on $1 billion in 2015. After meeting with ServiceNow CFO Mike Scarpelli Feb. 2, Evercore ISI analyst Kirk Materne said in a research note that the company is going to remain in the penalty box until investors feel more comfortable about the 2016 forecast. He pointed out that ServiceNow had missed its own annual contract value target in 2015 due to “elevated sales turnover” and a pause in hiring in Q2. Sales staff hiring ramped up late last year, but billings guidance of 33% to 34% growth for 2016 “assumes very little/no sales productivity improvement and modest growth expectations for EMEA (Europe, Middle East and Africa) as the new regional sales head ramps up,” Materne warned. Still, he had a buy rating and 83 price target on ServiceNow stock, seeing growth in its market and in adoption rates for its platform. The company now averages seven custom apps per customer, up from 5.6 a year ago, Materne pointed out.