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ServiceNow Sales Beat Estimates, 2014 Outlook Raised

Another sign of the recovery in cloud software companies.


If you needed another hint that cloud software companies are bouncing back from the big slump they experienced earlier in the year, look no further than ServiceNow, which reported second-quarter sales that were better than expected and a stronger-than-expected outlook for the rest of the year.

ServiceNow reported a seven-cent per share loss on $167 million. The loss was in line with expectations, but sales were ahead of the consensus of $161.5 million. Sales rose by 63 percent year-on-year.

Nonetheless, shares were down more than 5.5 percent in after-hours trading, after rising by five percent during the regular session. The shares are up 12 percent since the start of the year.

The company, which offers cloud-based services that help other companies automate their corporate IT environment, said it expects to finish 2014 with sales between $668 million and $673 million, way ahead of the consensus view that called for $656 million. Deferred revenue, a key metric for cloud software companies reflecting services not yet delivered, rose by more than seven percent to $329 million. CEO Frank Slootman (pictured) said ServiceNow added 169 new customers during the quarter.

It was the second strong earnings report from a cloud software company in as many weeks. Last week NetSuite reported sales that rose 30 percent year-on-year and profits that were double what analysts expected.

Shares of both are tracked in the Bessemer Venture Partners Cloud Index, which includes the shares of 38 cloud software companies. ServiceNow is the fourth-biggest on that list as measured by market capitalization, behind, LinkedIn and Workday. As of last Friday, the index was trending upward again, up almost four percent from the week before.

The value of the index is still recovering from a pronounced drop that occurred in February. That drop not only shook the nerves of investors in cloud software companies, but also had the effect of delaying the IPO plans of the cloud storage and collaboration company Box, which are now getting back on track.

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