ServiceNow and Tesla Earnings Review (Elon is Corny but Rich)
There are two companies that absorbed my attention over the past few days because of their earnings. First is ServiceNow, a stock I bought a month or two ago at $833. Then, Tesla, which I have never, and will never, buy when Elon Musk is in charge. Hopefully, this will be the last Tesla article for a while. I have written too many of them recently, so hopefully this is the grand finale until he does something that I feel morally obliged to write 600-800 words about.
ServiceNow reported earnings on Wednesday after-hours. That week, they had traded down about 2% in pre-earnings angst, and I was expecting a 5% jump, so a 3% net gain from positive earnings. Then, earnings dropped. I thought they were what ServiceNow earnings are every time, a 7.5/10. A really solid beat that shows meaningful growth for the future. However, the market traded down 2% in after-hours, and I became a smidgen worried. It turns out my fear was all for naught, as the stock popped about 6.5% in trading the next day after the institutional investors were provided the liquidity to trade. The stock got all the way up to $970, putting us closer and closer to that great $1,000 mark.
None of that actually matters though. What does matter is the intrinsic quality of those earnings. Revenue rose 22% y/y, exceeding expectations, EPS was $3.72, exceeding expectations, and the all-critical subscription revenue was up 23%. What I really liked was what Bill McDermott said after the earnings were released, that new and existing customers are “doubling down on their investments in ServiceNow as the AI platform for business transformation." ServiceNow, really, is an AI play. Their new model, the Xanadu platform, is supposed to be the most innovative and highest-quality AI model released so far. This platform, and the following generations in the pipeline, will bring new customers looking for AI to boost efficiency, which is why ServiceNow raised their revenue guidance for the year by $100 million.
These earnings really helped to confirm something that has been present to me since this stock was brought to my attention by my grandfather (shout out). ServiceNow is one of the safest AI plays. It is a non-behemoth company, so there is room to grow. They are selling software, which has printed money for two decades. They are far ahead in the AI-integration space, which is where the long-term gains are. Their leadership is excellent, and their CEO, Bill McDermott, wears sunglasses all the time, a win on every front.
That said, I do not know if I would be comfortable telling my grandmother to buy the stock right now. Their valuation is insane (high-50s), and the market is projecting a lot of growth. I feel confident in the stock, which is why I am holding these gains, but I do not plan to add to my position at this moment.
Now, on to a company whose stock I will never add to my portfolio, at least, as long as Elon is there. They had a pretty good quarter, not 25% good (some short-covering), but it was definitely good.
Margins were solid, Elon projected (although projections can be tough to trust from him) 25% sales growth next year, and Elon promised (again, a little touchy) an affordable Tesla EV by next year, and the Tesla fully self-driving division (FSD) reported solid revenues of a few hundred million, which is not too bad at all. Revenue growth was 8% y/y, which is a bit more sluggish than I would want, but even from an Elon-hater, I am extremely impressed.
I am moving Tesla from “I would be tortured for 1000 years in Hell before investing” to “eh, it’s your money.”
Hopefully, this is the last time I have to see or talk about Elon. He will just ride off into the sunset, out of politics, and just go back to making cool gadgets and rockets.
