On Thursday, Stifel increased the stock price target for ServiceNow (NYSE: NYSE:NOW) to $990 from $900, while reiterating a Buy rating on the stock. The firm's analyst cited ServiceNow's third-quarter performance, which included a 150 basis point upside in current RPO (cRPO), meeting expectations. This was attributed to significant net new annual contract value (NNACV) outperformance and slightly higher early renewals.
ServiceNow's fourth-quarter cRPO guidance was reported to align with consensus expectations, showing a 21.5% year-over-year growth on a constant currency basis. Despite the stock's substantial gains over the past three months, outpacing both the SPY and IGV indexes by double digits, it remained relatively unchanged after-hours following the earnings release.
Management at ServiceNow highlighted over $95 million in total genAI deal flow, which analysts believe will continue to grow and potentially contribute an additional 1-2% to the company's subscription-revenue growth by 2025. The company also expressed a positive outlook for fiscal year 2025, pointing to a significant renewal cohort and reduced federal duration headwinds in the first quarter of 2025.
The analyst concluded that ServiceNow's broadening platform, robust pipeline, momentum in large deals, and the emerging opportunities with genAI technology position the company to sustain over 20% growth in revenue and free cash flow, along with margin expansion in the upcoming years. The new price target of $990 reflects this optimistic forecast for the company's financial performance.
In other recent news, ServiceNow has reported strong Q3 performance, with a 22.5% year-over-year increase in subscription revenue reaching $2.715 billion. The company also raised its full-year 2024 subscription revenue forecast to between $10.655 billion and $10.66 billion.
Amid these developments, several analyst firms including Baird, RBC Capital Markets, Canaccord Genuity, and Goldman Sachs have raised their price targets for ServiceNow, reflecting confidence in the company's growth trajectory.
ServiceNow's GenAI technology, specifically its Now Assist product, has been influential in securing high-value contracts, contributing to the company's robust performance. The company's collaboration with industry leaders NVDA and SNOW, along with the appointment of Amit Zavery as President, COO, and CPO, signals ServiceNow's ongoing commitment to growth and innovation.
Despite concerns surrounding ServiceNow's partnership with Carahsoft, the company's U.S. Federal business remains unaffected by these recent developments. These updates are part of ServiceNow's ongoing strategy as it targets a trajectory towards $30 billion in revenue.
InvestingPro Insights
ServiceNow's strong performance and positive outlook are further supported by real-time data from InvestingPro. The company's impressive gross profit margin of 79.07% for the last twelve months as of Q2 2024 aligns with the InvestingPro Tip highlighting its "impressive gross profit margins." This robust profitability metric underscores ServiceNow's efficiency in delivering its software solutions.
The company's revenue growth of 24.17% over the same period demonstrates its continued expansion, supporting Stifel's optimistic view on ServiceNow's ability to sustain over 20% growth. Moreover, the stock's strong performance is reflected in its 63.73% price total return over the past year, corroborating the InvestingPro Tip of "high return over the last year."
It is worth noting that ServiceNow is trading at a high P/E ratio of 163.05, which aligns with the InvestingPro Tip indicating it's "trading at a high earnings multiple." This valuation suggests investors have high expectations for future growth, consistent with the analyst's positive outlook on the company's potential with genAI and its broadening platform.
For investors seeking a more comprehensive analysis, InvestingPro offers 17 additional tips for ServiceNow, providing deeper insights into the company's financial health and market position.
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