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ServiceNow (NOW) Loses 5% in a Week: Should You Buy the Dip?
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ServiceNow (NOW - Free Report) shares have declined 5.4% in the past week. Year to date, NOW shares have returned 5.2%, underperforming the Zacks Computer & Technology sector’s gain of 29.4% and the S&P 500’s 17.7%.
ServiceNow’s prospects have been suffering from challenging macroeconomic conditions, including persistent inflation that has led to lengthening in deal closure timings. The recent dip can be attributed to growing skepticism over NOW’s growth prospects in the second half of 2024, which is unwarranted in our view. The dip now presents an entry opportunity for growth-oriented investors.
ServiceNow has been benefiting from strong expansion in clientele as enterprises undergoing digital transformation continue to adopt its workflow solutions. NOW ended the first quarter of 2024 with 1933 total customers with more than $1 million in annual contract value (ACV).
ServiceNow had eight deals greater than $5 million in net new ACV and four deals of more than $10 million. It closed 59 deals greater than $1 million net new ACV. Number of customers contributing more than $20 million or more grew 50% year over year.
The momentum is expected to have continued in second-quarter 2024, results for which NOW is scheduled to announce on Jul 24.
Year-to-Date Performance
Image Source: Zacks Investment Research
ServiceNow expects second-quarter 2024 subscription revenues between $2.525 billion and $2.53 billion, suggesting an improvement in the range of 21.5-22% year over year on a GAAP basis. At constant currency, subscription revenues are expected to grow in the 22% range.
The Zacks Consensus Estimate for second-quarter 2024 subscription revenues is pegged at $2.527 billion, roughly in line with the mid-point of the management’s guidance range.
NOW Stock to Ride Higher on Strong Portfolio
ServiceNow is extensively leveraging AI and machine learning technologies to boost the potency of its solutions. The enhanced capabilities are helping it to rapidly expand its footprint in the insurTech, strategic portfolio management, cloud management, talent development and public sector domains.
NOW’s expanding Generative AI (GenAI) capabilities are noteworthy, as its total addressable market is expected to hit $275 billion in 2026.
In the first quarter of 2024, GenAI deals continued to gain traction with record-breaking net new ACV for Pro Plus, making it the fastest-selling product in ServiceNow’s history. Gen AI products were in seven of ServiceNow’s top 10 deals, and it closed seven deals worth more than $1 million in ACV in the reported quarter.
Through its Washington, D.C. platform update, ServiceNow introduced a host of cutting-edge features aimed at streamlining operations, enhancing productivity and advancing the adoption of GenAI across various sectors.
In May, it unveiled new AI capabilities to foster talent development. Solutions like Now Assist for HR Service Delivery use GenAI to answer and act on questions related to talent development. Its Digital End-User Experience solution helps improve employee productivity and satisfaction while reducing costs.
Moreover, a strong partner base that includes the likes of Microsoft (MSFT - Free Report) , NVIDIA (NVDA - Free Report) , International Business Machines (IBM - Free Report) , Infosys and Equinix is strengthening NOW’s AI capabilities.
Image Source: ServiceNow
ServiceNow and Microsoft are integrating the new ServiceNow Now Assist and Microsoft Copilot into one seamless enterprise experience.
Leveraging NVIDIA’s Avatar Cloud Engine speech, large language model and animation technologies that bring digital characters to life using GenAI, ServiceNow has unveiled AI avatars.
NOW and IBM are combining the Now Platform with IBM watsonx to boost productivity for mutual customers and partners.
Conclusion
ServiceNow’s robust GenAI portfolio and strong partner base are expected to drive its subscription revenues in the long haul.
For 2024, ServiceNow expects subscription revenues to be $10.56-$10.575 billion (up $20 million from the previous guidance), which suggests a rise between 21.5% and 22% from 2023 on a GAAP basis. At constant currency, subscription revenues are expected to grow 21.5% over 2023.
The Zacks Consensus Estimate for 2024 revenues is pegged at $10.88 billion, indicating 21.31% growth year over year. The consensus mark for earnings is pegged at $13.51 per share, unchanged over the past 30 days and indicating a 25.32% year-over-year increase.
Estimate Revision Steady
Image Source: Zacks Investment Research
A strong liquidity position with a cash balance of $8.8 billion and robust free cash flow generating ability ($3.3 billion estimated in 2024 compared with $2.7 billion reported in 2023) is noteworthy as it allows NOW to pursue various growth opportunities, including acquisitions.
Although the Value Style Score of D suggests a stretched valuation at this moment, the Growth Style Score of A is hard to ignore.
Image: Bigstock
ServiceNow (NOW) Loses 5% in a Week: Should You Buy the Dip?
ServiceNow (NOW - Free Report) shares have declined 5.4% in the past week. Year to date, NOW shares have returned 5.2%, underperforming the Zacks Computer & Technology sector’s gain of 29.4% and the S&P 500’s 17.7%.
ServiceNow’s prospects have been suffering from challenging macroeconomic conditions, including persistent inflation that has led to lengthening in deal closure timings. The recent dip can be attributed to growing skepticism over NOW’s growth prospects in the second half of 2024, which is unwarranted in our view. The dip now presents an entry opportunity for growth-oriented investors.
ServiceNow has been benefiting from strong expansion in clientele as enterprises undergoing digital transformation continue to adopt its workflow solutions. NOW ended the first quarter of 2024 with 1933 total customers with more than $1 million in annual contract value (ACV).
ServiceNow had eight deals greater than $5 million in net new ACV and four deals of more than $10 million. It closed 59 deals greater than $1 million net new ACV. Number of customers contributing more than $20 million or more grew 50% year over year.
The momentum is expected to have continued in second-quarter 2024, results for which NOW is scheduled to announce on Jul 24.
Year-to-Date Performance
ServiceNow expects second-quarter 2024 subscription revenues between $2.525 billion and $2.53 billion, suggesting an improvement in the range of 21.5-22% year over year on a GAAP basis. At constant currency, subscription revenues are expected to grow in the 22% range.
The Zacks Consensus Estimate for second-quarter 2024 subscription revenues is pegged at $2.527 billion, roughly in line with the mid-point of the management’s guidance range.
NOW Stock to Ride Higher on Strong Portfolio
ServiceNow is extensively leveraging AI and machine learning technologies to boost the potency of its solutions. The enhanced capabilities are helping it to rapidly expand its footprint in the insurTech, strategic portfolio management, cloud management, talent development and public sector domains.
NOW’s expanding Generative AI (GenAI) capabilities are noteworthy, as its total addressable market is expected to hit $275 billion in 2026.
In the first quarter of 2024, GenAI deals continued to gain traction with record-breaking net new ACV for Pro Plus, making it the fastest-selling product in ServiceNow’s history. Gen AI products were in seven of ServiceNow’s top 10 deals, and it closed seven deals worth more than $1 million in ACV in the reported quarter.
Through its Washington, D.C. platform update, ServiceNow introduced a host of cutting-edge features aimed at streamlining operations, enhancing productivity and advancing the adoption of GenAI across various sectors.
In May, it unveiled new AI capabilities to foster talent development. Solutions like Now Assist for HR Service Delivery use GenAI to answer and act on questions related to talent development. Its Digital End-User Experience solution helps improve employee productivity and satisfaction while reducing costs.
Moreover, a strong partner base that includes the likes of Microsoft (MSFT - Free Report) , NVIDIA (NVDA - Free Report) , International Business Machines (IBM - Free Report) , Infosys and Equinix is strengthening NOW’s AI capabilities.
ServiceNow and Microsoft are integrating the new ServiceNow Now Assist and Microsoft Copilot into one seamless enterprise experience.
Leveraging NVIDIA’s Avatar Cloud Engine speech, large language model and animation technologies that bring digital characters to life using GenAI, ServiceNow has unveiled AI avatars.
NOW and IBM are combining the Now Platform with IBM watsonx to boost productivity for mutual customers and partners.
Conclusion
ServiceNow’s robust GenAI portfolio and strong partner base are expected to drive its subscription revenues in the long haul.
For 2024, ServiceNow expects subscription revenues to be $10.56-$10.575 billion (up $20 million from the previous guidance), which suggests a rise between 21.5% and 22% from 2023 on a GAAP basis. At constant currency, subscription revenues are expected to grow 21.5% over 2023.
The Zacks Consensus Estimate for 2024 revenues is pegged at $10.88 billion, indicating 21.31% growth year over year. The consensus mark for earnings is pegged at $13.51 per share, unchanged over the past 30 days and indicating a 25.32% year-over-year increase.
Estimate Revision Steady
A strong liquidity position with a cash balance of $8.8 billion and robust free cash flow generating ability ($3.3 billion estimated in 2024 compared with $2.7 billion reported in 2023) is noteworthy as it allows NOW to pursue various growth opportunities, including acquisitions.
Although the Value Style Score of D suggests a stretched valuation at this moment, the Growth Style Score of A is hard to ignore.
ServiceNow currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.