ServiceNow Shares Gain 3% on Strong Q4 and Guidance

Raymond James has initiated coverage of ServiceNow (NYSE:NOW) with an Outperform rating and a price target of $1,200, reflecting strong confidence in the company's long-term prospects despite current valuation challenges. The analysis highlights ServiceNow’s resilience and growth potential as a leading enterprise software provider poised for continued expansion.

The firm sees ServiceNow maintaining its premium valuation due to its robust growth trajectory, driven by sustained demand for its cloud-based workflow solutions and ongoing advancements in artificial intelligence. The company’s ability to monetize AI innovations and achieve incremental margin improvements is expected to bolster overall revenue growth, projected at around 20%.

For long-term investors, ServiceNow’s trajectory is compared to other iconic software leaders, such as Microsoft, Salesforce, and Adobe, at similar revenue milestones. Following a comparable path, ServiceNow has the potential to deliver significant relative outperformance in the coming years, solidifying its position as a market leader.

Shares of ServiceNow (NYSE:NOW) shares rose more than 5% intra-day today following the company's announcement of a fourth-quarter subscription revenue forecast that surpassed Wall Street expectations. The IT management software provider also raised its full-year subscription revenue outlook, driven by continued demand from both new and existing customers.

For the fourth quarter, ServiceNow projected subscription revenue between $2.875 billion and $2.880 billion, exceeding the Street consensus of $2.85 billion. Additionally, the company increased its annual subscription revenue forecast to a range of $10.655 billion to $10.660 billion, up from its previous guidance of $10.575 billion to $10.585 billion.

In the third quarter, ServiceNow reported adjusted earnings per share of $3.72 on revenue of $2.79 billion, beating expectations of $3.45 per share and $2.75 billion in revenue. The company also saw a 16% increase in current remaining performance obligations, reaching $9.36 billion.

• Wells Fargo maintains a "Buy" rating for ServiceNow, indicating a positive outlook on the company's future performance.
• The stock price of $938.65 reflects a 1.81% increase, showcasing investor confidence and strong market performance.
• ServiceNow's resilience is highlighted by its stock price nearing the 52-week high, with a market capitalization of approximately $193.36 billion, indicating its significant impact in the tech industry.

ServiceNow (NYSE:NOW) is a leading provider of cloud-based solutions that help companies manage digital workflows. The company offers a range of services, including IT service management, operations management, and business management. ServiceNow competes with other tech giants like Salesforce and Microsoft in the enterprise software market.

On October 9, 2024, Wells Fargo maintained its "Buy" rating for ServiceNow, with the stock priced at $938.65. This rating suggests confidence in the company's future performance. The stock's price reflects a 1.81% increase from the previous session, indicating strong investor interest and performance that surpasses the general market trend.

ServiceNow's stock price of $938.65 represents a $16.65 increase, showcasing its resilience and growth potential. The stock traded between $915.96 and $943.30 during the day, demonstrating some volatility. However, it remains close to its 52-week high of $945.46, highlighting its upward trajectory.

With a market capitalization of approximately $193.36 billion, ServiceNow is a significant player in the tech industry. The trading volume for the day was 843,290 shares, reflecting active investor engagement. This level of activity suggests that investors are optimistic about the company's prospects.

ServiceNow's stock performance is noteworthy, especially considering its 52-week range of $527.24 to $945.46. The company's ability to maintain a high stock price indicates strong market confidence. As highlighted by Wells Fargo's "Buy" rating, ServiceNow is well-positioned for continued growth in the competitive tech landscape.

ServiceNow (NYSE:NOW) experienced a notable increase of more than 6% in its share price pre-market today following the announcement of higher annual subscription guidance and impressive fiscal Q2 results. The software company also revealed that COO CJ Desai had left, with Chris Bedi stepping in as interim Chief Product Officer.

ServiceNow reported adjusted earnings of $3.13 per share on revenue of $2.63 billion, surpassing Wall Street estimates of $2.82 per share on revenue of $2.60 billion.

Subscription revenues for Q2 grew by 23% to $2.54 billion compared to the same period last year, driven by new business acquisitions. The company recorded 88 transactions exceeding $1 million in net new annual contract value (ACV) in Q2, a 26% increase year-over-year, significantly boosting its backlog.

ServiceNow's remaining performance obligations (RPO) reached $18.6 billion as of Q2, marking a 31% growth year-over-year. Looking forward, the company raised its subscription revenue guidance to a range of $2.66 billion to $2.67 billion, up from the previous range of $2.525 billion to $2.530 billion.

Citi analysts increased their price target on ServiceNow (NYSE:NOW) to $911 from $909 while maintaining a Buy rating on the stock. The analysts believe that ServiceNow is well-positioned to outperform in a sluggish software demand environment due to its expanding automation platform, which is set to gain significant market share through consolidation and the rollout of AI/GenAI use cases across IT and back/mid-office operations.

Despite concerns about macroeconomic softness in Europe, the analysts noted that these are offset by strong performance in North America and the Middle East, as well as significant large deal momentum, including one of the largest deals in the company's history. They anticipate that ServiceNow will continue to deliver healthy financial results, driven by large deal activity, increasing Pro-Plus contributions, and heightened federal activity.

The analysts expect stronger positive revisions compared to Q1, with built-in conservatism and a potential acceleration in the cRPO metric in the second half of the year providing additional catalysts.

ServiceNow (NYSE:NOW) announced first-quarter earnings with a significant increase in adjusted earnings per share (EPS) to $3.41, up from $2.37 a year earlier, beating the consensus of $3.16. Revenue also outpaced expectations, amounting to $2.60 billion compared to an anticipated $2.58 billion.

The company's subscription revenue aligned with expectations at $2.52 billion. However, ServiceNow provided a softer forecast for the second quarter, expecting subscription revenue between $2.525 billion and $2.53 billion, slightly below the forecast of $2.54 billion. This guidance adjustment led to a 4% drop in ServiceNow’s stock in pre-market today.

For the full year, ServiceNow tightened its subscription revenue outlook to between $10.56 billion and $10.58 billion, marginally under the consensus estimate of $10.59 billion.

Notably, the company reported an adjusted gross margin of 83%, surpassing the expected 82.6%. The subscription gross margin was particularly strong at 86%, well above the forecasted 84.7%.

ServiceNow also highlighted a significant rise in free cash flow, which reached $1.23 billion, surpassing estimates of $961.1 million.

Needham analysts increased their price target for ServiceNow (NYSE:NOW) to $900 from $660, while reiterating their Buy rating.

The analysts maintained a positive outlook on ServiceNow shares leading up to the company's earnings announcement on Wednesday. They believe that the management's conservative approach to the 2024 Subscription Revenue target of $10.4 billion, set during the May 2023 Financial Analyst Day, leaves room for outperformance.

At the time of this forecast, ServiceNow had not yet launched its Pro+ SKUs, finalized SKU pricing, or fully gauged customer interest and pipeline development. Moreover, the company had not incorporated its GenAI offerings into the product roadmap.

Given ServiceNow’s subscription revenue model and its consistent outperformance throughout 2023, the analysts expect the company to surpass its initial $10.4 billion target (with a consensus estimate of $10.5 billion). They emphasized ServiceNow's potential as a sustainable growth company, with over 20% annual growth driven by its subscription-based revenue model, comprehensive platform offerings, and the emerging monetization of its GenAI technology.