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ServiceNow ( NOW ) stock rose Tuesday, with word out that it might be able to settle some of its patent litigation with privately held BMC Software, avoiding a trial scheduled to start Friday. A cloud-based business software rival of SAP ( SAP ) and Salesforce.com ( CRM ), ServiceNow shares were up more than 4% in afternoon trading in the stock market today , near 60.70. William Blair analyst Justin Furby suggested the possible settlement may “be a mild positive, as the prospect of a jury trial and the potential appeals process … would have likely created overhang on the stock. “More importantly, until this point, we believe the litigation has not affected ServiceNow’s sales cycles,” Furby wrote in a research note Tuesday. But the increased public attention of a trial “could have delayed sales for SerivceNow, particularly if the court would have ruled in BMC’s favor. “Lastly, BMC had sought injunctive relief, and had the lawsuit and subsequent appeals process gone against ServiceNow, it could have faced the prospect of discontinuing or rewriting certain of its applications,” Furby said. BMC sued ServiceNow in September 2014, claiming seven patent violations. Courts dismissed two claims, and BMC withdrew a third. But last month, BMC filed a second lawsuit against ServiceNow, claiming infringement of five patents, two of which were included in the original litigation, Furby said, adding that he didn’t know if the proposed settlement included this second case. He said he spoke with someone at ServiceNow who told him that “all matters in controversy between the parties have been settled, in principle.” ServiceNow did not immediately respond to IBD’s request for comment. The four remaining claims of the original lawsuit involve “managing a computer network via hierarchy,” collecting performance management data, determining the root cause of a problem, and “spotlight visualization” for IT service models, Furby noted. Hewlett Packard Also Suing ServiceNow As for separate litigation filed against ServiceNow in February 2014 by the former Hewlett-Packard Co. — now represented in the action by Hewlett Packard Enterprise ( HPE ) — claiming eight patent infringements, the court threw out four claims, stayed litigation on two, and scheduled an April 29 hearing and a May 22, 2017, trial date for the remaining two claims, Furby said. “The BMC settlement has yet to be finalized, and we are unclear what the amount will be and whether ServiceNow will be paying ongoing licensing fees to BMC as part of a potential settlement,” Furby wrote. ServiceNow has not been accruing reserves for damages but has been “expensing significant ongoing attorney fees … incorporated into guidance,” he said. Furby put the company’s net cash pile at about $700 million and estimated $325 million in free cash flow in 2016 prior to any settlement. ServiceNow stock is trading 34% off a record high 91.28 set Dec. 4. Its stock plunged 15.7% on Jan. 28 after reporting billings below expectations, although fourth-quarter non-GAAP EPS was up 533% to 19 cents, doubling analysts’ consensus, and revenue was up 44% to $285.6 million, also topping Wall Street. The IBD Computer Software-Enterprise industry group, led by SAP and Salesforce.com, has fallen 18% from its November highs. With $91.9 billion in market cap, SAP leads the group, followed by Salesforce’s $46.8 billion market value. ServiceNow’s market cap stands at $9.6 billion. Shares of SAP and Salesforce were up a fraction Tuesday afternoon, but Hewlett Packard Enterprise stock was down 2.5%. Scalper1 News
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