ServiceNow Tumbles as Guidance for Subscription Revenue Trails Consensus

By Senad Karaahmetovic

Shares of ServiceNow (NYSE:NOW) are down more than 6% in premarket trading after the company’s FY subscription revenue forecast missed expectations.

NOW reported Q2 adjusted EPS of $1.62, compared to $1.42 in the year-ago period, and above the consensus estimates of $1.55 per share. Adjusted revenue came in at $1.82 billion, topping the estimates of $1.76 billion.

The company reported Q2 subscription revenue of $1.66 billion, up 25% YoY, though just below the consensus projection of $1.67 billion. Subscription-adjusted gross margin stood at 86% at the end of the quarter, just above the expected 85.9%.

For the full year, ServiceNow expects subscription revenue in the range of $6.92 billion to $6.93 billion, while analysts were estimating $7.09 billion. The company forecasts a subscription-adjusted gross margin of 86%, compared to analyst expectations of 86.1%.

ServiceNow anticipates Forex headwinds of around $220 million for FY subscription revenue and a $180 million headwind for Q3 cRPO.

"We expect that cohort to renew in Q4 2022, at which time those headwinds will subside and we expect cRPO growth to re-accelerate quarter-over-quarter," NOW said in a press release.

A Barclays analyst cut the price target on NOW stock to $495 from $560 as he sees estimates coming down.

“Estimates are finally coming down which should set up NOW better in coming months. Short term we see NOW in the penalty box after very bullish management comments at the analyst day in May were followed by a surprisingly decent Q2 miss, but long term NOW remains one of the best-positioned names in our space and should be a relative outperformer,” he said in a research note.

A Mizuho analyst said he “fully expected mixed Q2 results,” but the report was “a little softer than anticipated”.

“Notwithstanding what is clearly an increased impact from the macro environment, we expect NOW to weather the storm and resume high growth over the next few years, aided by robust demand for workflow automation, strong cross-sell opportunities, and greater penetration of newer markets,” the analyst said and cut the price target to $500 from the prior $520.