ServiceNow Faces Mixed Analyst Opinions: Guggenheim Downgrades While Needham Sees Strong Growth Potential

ServiceNow Inc NOW shares are trading lower after Guggenheim analyst John Difucci downgraded the stock from Neutral to Sell with a $640 price target.

Needham analyst Mike Cikos reiterated ServiceNow with a Buy and a $900 price target.

Cikos noted that in each of the past five quarters, ServiceNow has surpassed quarterly cRPO and Subscription Revenue guidance.

The analyst anticipated ServiceNow can sustain 20%-plus growth over the medium-/long-term, where the company’s unified platform architecture and value proposition drive lower TCO.

ServiceNow is benefiting from a product cycle with the launch of Pro Plus in September 2023, layering an incremental tailwind through increased ASPs, as per Cikos.

The analyst said that when accounting for the significantly larger upside in the fourth quarter of calendar 2023, the average outperformance from October 2023 to March 2024 is approximately in line with the trend line.

Management’s Subscription Revenue guidance range for $2.525 billion to $2.530 billion (+21.7%-21.9% year-on-year reported) implies modest sequential growth, where the consensus estimate of $2.252 billion assumes a $2 million quarter-on-quarter increase, which would be the lowest in the company’s history as a publicly traded company stretching back to 2012, Cikos noted.

Over the last three years, ServiceNow’s Magic Number has been 0.22 in the second quarter of calendar 2020, 0.34 in the second quarter of calendar 2021, 0.19 in the second quarter of calendar 2022, and 0.29 in the second quarter of calendar 2023. To achieve the lowest mark (0.19) over the last four years, ServiceNow would need to report $35 million of upside to the consensus estimate – or $2.560 billion in subscription revenue, per the analyst.

Based on actual foreign currency movements during the second quarter of calendar 2024, Cikos estimated a slight headwind to reported Subscription Revenue and cRPO, where both currencies were ~1% weaker during the quarter, Cikos said. As a reminder, EMEA has consistently represented roughly 25% of total revenue. The total currency headwind is likely to be further insulated due to ServiceNow’s initiation of a currency hedging program during the first quarter of calendar 2024, Cikos added.

Price Action: NOW shares traded lower by 4.74% at $768.26 at the last check Monday.

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