ServiceNow (NYSE:NOW) is one of the most well-known software companies. It is in the cloud and data storage industry, so it has been quite a hot name over the past few months. In fact, NOW stock is still up 25% despite the recent decline.
As for the decline I’m talking about, the stock fell over 12.5% on Thursday so far. It is down over 16% from its peak this year, and this is due to the company posting a disappointing revenue forecast and mixed earnings results. Here’s what you need to know:
ServiceNow’s 2025 subscription revenue forecast is at $12.64 billion to $12.68 billion. This forecast fell short of Wall Street’s estimate of $12.86 billion, and the growth rate is also down to about 18.5-19% at midpoint. In comparison, growth was 21% in Q4 2024.
Moreover, Q1 subscription revenue is also a slight miss, since ServiceNow guided $2.995 billion to $3 billion. This missed the analyst estimate of $3.04 billion. There are also fears that a stronger U.S. dollar will reduce 2025 subscription revenue by $175 million, with $40 million impacting Q1 revenue. That said, the Trump administration could help on that front, since Trump has repeatedly said he would prefer to see the U.S. dollar weaker to promote exports.
The guidance doesn’t seem to be the only problem with ServiceNow. Subscription revenue grew 21% year-over-year to $2.87 billion, which is slightly below expectations. Adjusted EPS of $3.67 beat analyst expectations and the total revenue of $2.96 billion met expectations.
There’s also a bright spot regarding its client figure. There are now nearly 500 clients who have contracts over $5 million annually. This is up 21% year-over-year.
Conversely, there is a lot of fear about ServiceNow’s pay-as-you-go pricing model for its AI tools. There’s a good chance it could reduce subscription demand. There is also uncertainty about its $432 million deal with the U.S. Army. Cost-cutting from the Trump administration may cause ServiceNow to lose this deal, and if it does, this could drag the shares down even lower, though it’s likely some of that has been priced in already with the recent decline.
Wall Street definitely doesn’t look too happy after the recent earnings report. The consensus price target is at $1,194 if you aggregate all the price targets over the past three months. However, it is likely that this price target will start going lower as analysts price in the recent earnings report and guidance.
AI could help it make a comeback in the long run, but right now, the stock has more room to decline as it trades at 67 times forward earnings.