ServiceNow (NOW) Tops Estimates but Stock Dips as Outlook Implies Subscription Revenue Slowdown, Analysts Remain Positive

October 28, 2021 6:59 AM EDT
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Shares of ServiceNow (NYSE: NOW) are down nearly 3% in pre-open Wednesday despite the company reporting better-than-expected Q3 results.

ServiceNow reported Q3 EPS of $1.55 to top the analyst estimate of $1.38. Revenue for the quarter came in at $1.51 billion versus the consensus estimate of $1.47 billion. Subscription revenues came in at $1.427 billion.

“We reported another significant beat and raise quarter in Q3. Leaders recognize their technology architecture is their business architecture. As this digital transformation market is accelerating, ServiceNow’s platform is creating unmatched customer and employee experiences,” said ServiceNow President and CEO Bill McDermott.

For this quarter, ServiceNow is calling for subscription revenues of between $1.515 billion and $1.52 billion, calling for a 28% growth rate, which is slower compared to a 31% growth rate recorded for Q3.

Mizuho analyst Gregg Moskowitz reiterated a Buy rating and a $680.00 per share price target on solid results but modest guidance.

“NOW reported a good 3Q led by subscription billings growth of 28% Y/Y (26% CC) that nicely beat our and the Street's +22% forecast. cRPO growth of 32% CC was stronger, handily exceeding our +28-29% CC estimate. Having said that, we believe investor expectations were slightly higher (shares up ~8% over the last roughly two weeks), and the 4Q subscription revenue and billings guide was only marginally above consensus. Nevertheless, we reiterate our expectation of continued high growth for NOW over the course of the next few years, aided by robust demand for workflow automation, strong cross-sell opportunities, and deeper penetration into newer markets,” Moskowitz said in a note sent to clients.

Cowen analyst J. Derrick Wood raised the price target to $725.00 per share from the prior $670.00 on “strong Q3.”

"We are encouraged by the strong beat & raise. Shares -4% in AH likely due to the 4Q cRPO guide which has new noise in it, but the explanation is sound & investors should anchor on low 30% billings growth exiting 4Q despite a tough comp and $6b+ bookings level. Looking into next yr, a continued upgrade cycle, more multi-product traction, higher ASPs, EMEA/APJ kicking into a new gear & a big book of renewal are all bullish trends,” Wood said in a client note.

Shares of ServiceNow closed at $664.76 yesterday.

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