ServiceNow stock tumbles on subscription revenue guidance miss

Investing.com -- ServiceNow plummeted sharply even as the IT management software group's fourth-quarter results topped Wall Street estimates, supported by a jump in subscription revenue. 

ServiceNow Inc (NYSE:NOW) tumbled over 9% in premarket trading Thursday.

Santa Clara, California-based ServiceNow reported Q4 adjusted earnings per diluted share at $3.67 on revenue of $2.96 billion, compared with Wall Street expectations of $3.65 a share and $2.96 billion, respectively.

This marks the thinnest constant currency earnings growth beat since COVID-19 at 0.4% above the company's guidance. 

ServiceNow's release of new AI agents to help clients manage tasks autonomously continued to boost subscription growth.

Subscription revenues rose 21% to $2.87 billion in Q4 2024 from the same period a year earlier.

Current remaining performance obligations, a key metric, stood at $10.27B as of Q4 2024, representing 19% year-over-year growth.

For Q1, the company is guiding subscription revenues in a range of $2.995B to $3.00B, missing the estimates of $3.04 billion.

It expects its annual subscription revenue for 2025 to be in the range of $12.64 billion to $12.68 billion, also below the analysts' average estimate of $12.83 billion, according to data compiled by LSEG.

"Starting point for ‘25 brought down due to slightly weaker than expected Q4," Jefferies analysts commented. "We reduce our prior expected AI incremental impact in H2’25 and 2026 until we have a better line-of-sight on consumption revenue."

Nonetheless, the firm hiked its price target on the stock to $1021 from $913, maintaining a Buy rating. 

ServiceNow dismissed concerns that the quarter fell short of expectations. The management highlighted the early momentum of its GenAI functionality, noting a 150% quarter-over-quarter increase in deals and adoption by over 25% of Pro SKU customers.