ServiceNow (NOW -11.44%) stock is seeing big sell-offs in Thursday’s trading. The software company’s share price was down 11.3% as of 3:30 p.m. ET and had been down as much as 13.5% earlier in the day’s trading.
After the market closed yesterday, ServiceNow published its fourth-quarter results. Despite sales for the period being in line with Wall Street’s expectations and earnings beating the average target, relatively disappointing forward guidance is causing the the stock to sink today.
ServiceNow stock slumps despite earnings beat
ServiceNow posted non-GAAP (adjusted) earnings per share of $3.67 on revenue of $2.96 billion in the third quarter. For comparison, the average analyst estimate had called for the business to report adjusted earnings of $3.66 per share on $2.96 billion in sales. On the other hand, some investors and Wall Street analysts were betting on a bigger earnings beat for the quarter.
Revenue was up roughly 21% year over year in the period, with subscription sales also up 21% to hit approximately $2.87 billion. The company closed out the year with remaining performance obligations of $10.27 billion, representing an annual increase of 19% — or 22% on a currency-adjusted basis. The results generally suggest that ServiceNow is seeing strong demand for its AI-powered business transformation and workflow management services, but some of the growth that investors were expecting to hit in 2025 is now being pushed further out.
What’s next for ServiceNow?
For the current quarter, ServiceNow is guiding for sales to come in between $2.995 billion and $3 billion — representing growth of 18.75% year over year at the midpoint of the target. Remaining performance obligations at the end of the period are projected to be up 19.5%.
For the full year, management anticipates sales between $12.635 billion and $12.675 billion — again good for growth of 18.75% at the midpoint of the guidance range. The company anticipates a subscription gross profit margin of 82% and a free-cash-flow margin of 32% for the year.
ServiceNow’s forward guidance doesn’t look terrible by any stretch of the imagination, but investors were expecting stronger sales growth in conjunction with new AI services and federal contract wins. While shares could continue to see volatile trading in the near term, today’s valuation pullback could be a worthwhile buying opportunity for long-term investors.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ServiceNow. The Motley Fool has a disclosure policy.
