ServiceNow Drops on Lower Than Expected Subscription Revenue


The cloud-based business software giant ServiceNow (NYSE:NOW) lowered its full-year subscription revenue projection on Thursday, overshadowing an otherwise better-than-expected second-quarter performance, and its shares dropped more than 4% as a result.

ServiceNow (NYSE:NOW) reduced its full-year subscription revenue prediction from an earlier estimate of $7.03 billion to $7.04 billion to a range of $6.91 billion to $6.92 billion late on Wednesday. 

ServiceNow (NYSE:NOW) projects subscription revenue of $1.75 billion to $1.755 billion for its third quarter and a 20% increase in current remaining performance obligations (cPRO).

ServiceNow (NYSE:NOW) reported earnings of $1.62 per share, excluding one-time items, on revenue of $1.82 billion and subscription revenues of $1.72 billion, up 29.5% over the prior year.

Non-GAAP current remaining performance obligations (cRPO) were $6.02 billion as of June 30, 2022, up 27% year over year. However, cRPO fell short of the expected 28%.

A 500bp currency headwind brought on by the strengthening of the US dollar and prolonged sales cycles at the end of the quarter had an effect on the results.

ServiceNow Performance Ratings

Despite the decreased projection, Oppenheimer and William Blair maintained their outperform ratings for ServiceNow (NYSE:NOW), while BofA Securities, Truist Securities, and Oppenheimer all kept their buy recommendations on the company. 

Due to the expectation of additional headwinds, Truist lowered its estimates for the company for the remainder of the year and accordingly lowered its price target for the stock from $600 to $550 per share.

According to analysts, even if extended sales cycles and FX pressures are expected to cause additional challenges, the company’s fundamental business drivers and pipeline are still solid, and growth will resume when the microclimate recovers.

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