ServiceNow Earnings Impact Stock Despite Revenue Growth

ServiceNow Inc. sees its stock decline despite a revenue rise of 21% YoY. Earnings per share exceeded expectations, but guidance on subscription revenue growth concerns investors. Analysts remain bullish, with a price target raise despite the recent dip.

Date: 02-02-2025

AI Rating: 6

Earnings Per Share (EPS): The earnings per share reported by ServiceNow was $3.67, which slightly beat the expectations of $3.66. This indicates positive sentiment among investors regarding earnings performance.

Revenue Growth: ServiceNow reported revenue of $2.96 billion, a 21% increase year-over-year (YoY). This growth, while posted in line with expectations, shows a healthy sales performance.

Subscription Revenue Growth: The subscription revenue grew by 23% YoY, highlighting strong demand for the company's offerings, although the future guidance suggested a decrease to around 18%-19% growth, which has raised concerns among analysts.

Concerns About Future Growth: The guidance hinting at a deceleration in growth is a significant concern for investors, particularly since the stock appears to be priced for accelerating growth. This has the potential to affect stock prices negatively, as the market may react unfavorably to slowing growth expectations.

Stock Performance and Investor Sentiment: After the earnings report, ServiceNow's stock decreased by 11%. The mention of a significant premium pricing leads to questions about valuation, especially in the context of fluctuating market conditions.

Long-term Outlook: While there are risks in the short term, the long-term outlook remains positive, especially in AI growth with projected increases in annual contract value (ACV) from generative AI customers. The company continues to invest in growth despite competitors cutting hiring.

Overall Assessment: Analysts seem cautiously optimistic, maintaining buy ratings and raising price targets, which indicates potential for recovery and upward movement if growth metrics stabilize.

Stocks: NOW JPM