Summary
ServiceNow closed fiscal 2021 with fourth quarter revenue of $1.61 billion, up 29.1% from the prior-year quarter. Full-year revenue reached $5.90 billion, up 30.5%. Subscription revenue, the bulk of the business, was $1,523 million in the quarter, up 29% year over year and 30% adjusted for constant currency. Management said the company exceeded the high end of its guidance across all fourth quarter metrics.
Profitability improved. Fourth quarter gross profit was $1.24 billion, up 27.7%, though gross margin slipped to 76.8%, down 0.9 percentage points. Operating income was $35 million, up 94.4%, and operating margin rose to 2.2%, up 0.7 percentage points. Net income was $26.42 million, up 58.7%. For the full year, net income was $230.14 million, up 94.2%, and diluted earnings per share were $1.13, up from $0.59. Full-year gross margin was 77.1%, down 1.1 percentage points, while full-year operating margin was 4.4%, flat.
Cash generation stayed strong. Fourth quarter operating cash flow was $844 million, up 23.2%, and full-year operating cash flow was $2.19 billion, up 22.7%. Capital expenditures were $100 million in the quarter, down 25.4%. Non-GAAP free cash flow was $744 million in the quarter, a 46% margin, and $1,867 million for the full year, a 32% margin. Deferred revenue, current portion, was $3.84 billion, up 29.5%. Remaining performance obligations were $11.5 billion, up 29.2%, with current RPO of $5.7 billion, up 29% and 32% in constant currency.
Demand metrics were healthy. ServiceNow closed 135 transactions with more than $1 million in net new annual contract value, up 52% year over year. It ended the year with 1,359 customers above $1 million in annual contract value, up 25%. The renewal rate held at 98%. The company also completed the acquisitions of Gekkobrain and DotWalk and announced several executive promotions, including Chirantan Desai as chief operating officer.
Guidance points to continued growth. For the first quarter of 2022, ServiceNow expects subscription revenues of $1,610 million to $1,615 million, up 25% and 27.5% in constant currency, with cRPO growth of 28% and 29.5% in constant currency. For the full year 2022, it guides subscription revenues of $7,020 million to $7,040 million, up 26% and 28% in constant currency, with a non-GAAP operating margin of 25% and a free cash flow margin of 31%. Management flagged an FX headwind of roughly $110 million on 2022 subscription revenue and $75 million on first quarter 2022 cRPO.
Two items deserve attention. The MD&A discloses a change in the estimated useful life of data center equipment from three to four years, effective in fiscal 2022, which is expected to lift 2022 operating income by about $80 million. That flatters reported profitability without a matching revenue benefit. The risk list is familiar but real: COVID-19 variants, cybersecurity events, competition, foreign currency swings, and the ability to convert remaining performance obligations into revenue. ServiceNow also said it will stop disclosing billings, a metric it now considers less indicative of business performance.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2021 | Q3 FY2021 | QoQ | Q4 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $1.61B | $1.51B | +6.7% | $1.25B | +29.1% |
| Gross profit | $1.24B | $1.16B | +6.7% | $971.2M | +27.7% |
| Gross margin | 76.8% | 76.8% | -0.0 pp | 77.7% | -0.9 pp |
| Research & development | $392.0M | $358.0M | +9.5% | $284.3M | +37.9% |
| Sales & marketing | $632.0M | $579.0M | +9.2% | $533.9M | +18.4% |
| General & administrative | $181.0M | $151.0M | +19.9% | $135.1M | +33.9% |
| Total operating expenses | $1.21B | $1.09B | +10.8% | $953.3M | +26.4% |
| Operating income (loss) | $35.0M | $74.0M | -52.7% | $17.9M | +95.2% |
| Operating margin | 2.2% | 4.9% | -2.7 pp | 1.4% | +0.7 pp |
| Net income (loss) | $26.0M | $63.0M | -58.7% | $16.6M | +56.2% |
| Net margin | 1.6% | 4.2% | -2.6 pp | 1.3% | +0.3 pp |
| Diluted EPS | $0.13 | $0.31 | -$0.18 | $0.08 | +$0.05 |
Risks
Global trends to regulate AI and privacy laws may limit how ServiceNow uses data to develop products and may impede adoption by regulated customers. The company recently began an EU-centric services delivery model requiring significant financial and human resources, and may face similar local-solution requests in other territories.
Competition for technology talent has intensified, with a 'great resignation' and significant performance-based equity awards to executive staff outside the regular compensation program. As of December 31, 2021, approximately 31% of employees had been employed for a year or less, and hybrid work may challenge culture and retention.
Cyberattack volume, frequency, and sophistication have increased, including state-supported attacks and the log4j vulnerability identified in late 2021. Development and testing environments have less rigorous security protocols, and remote access has expanded the attack surface.
Systems of record operators may offer workflow solutions or try to prevent integration, while enterprise application vendors such as Oracle, SAP, Salesforce, and Workday may bundle or discount competing products, creating pricing pressure. ServiceNow expects increasing competition in low-code/no-code and adjacent markets.
MD&A states the longer-term revenue growth rate is declining and expected to continue declining due to business maturation, competition, or slower market growth. Billings has become less indicative of actual performance and the company does not plan to disclose it in future filings.
As sales efforts target larger enterprise customers, sales cycles may become longer and more expensive, with greater configuration, integration, and compliance demands. Sales and marketing expenses increased 24% for the year ended December 31, 2021, compared to the prior year.
Sales outside North America represented 36% of total revenues for the year ended December 31, 2021, up from 35% for 2020, and the company continues substantial investments in data centers and geographic-specific service delivery. Risks include data residency, local partner requirements, and regulatory changes in less established markets.
Government procurement is highly competitive, time-consuming, and subject to bid protests, audits, and termination for convenience. ServiceNow must maintain FedRAMP High P-ATO and DoD Impact Level 4 authorizations, and increasing 12-month U.S. Federal agreements add contract-duration variability.
An increasing portion of revenues is generated through partners, including managed service providers and resellers, and there may not be enough qualified implementation partners to meet demand. Partner misrepresentation, non-performance, or competitive use of the platform could harm sales and growth.
ServiceNow continues to evaluate and execute strategic transactions, and 2021 investing activities included a $678 million increase in business combinations, net of cash acquired. Integration, dilution, and unknown liabilities could harm results.
U.S. inflation rates have increased to levels not seen in several years, and because typical contracts lock in prices for a few years, profitability could be negatively affected. Global economic volatility could delay customer purchasing decisions and reduce subscription value or duration.
An increasing percentage of contracts and billings are in foreign currencies, particularly the Euro and British Pound Sterling. The weakening U.S. Dollar had a favorable impact on 2021 revenues but an unfavorable impact on costs; if 2021 subscription revenues were translated at 2020 rates, they would have been $77 million lower.
The remaining $92 million principal of the 2022 Notes will be settled in cash during the first half of 2022, and the conditional conversion feature may adversely affect liquidity. The company also has $1.5 billion aggregate principal of 2030 Notes due September 1, 2030, with debt service and covenant obligations.
The effective tax rate was 8% for the year ended December 31, 2021, compared to 21% for 2020, and the company maintains a full valuation allowance on U.S. federal and state deferred tax assets. Global tax developments and audits could increase the effective rate and harm financial position.
The extent and continued impact of COVID-19 remains highly uncertain, including new variants, vaccine distribution, and return-to-office health protocols. Employees who disagree with health protocols may seek employment elsewhere, and office reopening could add costs or liability.
Major research and development, offices, and IT systems are near seismic faults in California and Washington, and California headquarters have experienced climate-related events including drought, heat waves, wildfires, and power shutoffs. These could disrupt operations and increase costs.
SaaS KPIs
All quarters →Non-GAAP operating margin
Free cash flow margin
Free cash flow
Non-GAAP subscription gross margin
RPO
Subscription Billings
Total Billings
cRPO
Customers with > $1M ACV
Summary, forecast, risks and KPIs are extracted from ServiceNow, Inc.'s SEC filings for Q4 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 1, 2026.