Stock Story -
What Happened: Shares of enterprise workflow software maker ServiceNow (NYSE:NOW) fell 7.6% in the morning session after the company reported first-quarter earnings results. One negative was that calculated billings missed by 0.5%, and large customer net adds slowed a bit from historical pace. Guidance was another reason why the stock traded down. Subscription revenue guidance for next quarter missed by about 3% and implies 22% (constant currency) growth, further deceleration from this quarter. Full year guidance was maintained from previous and calls for ~30% operating and FCF margins.
Overall it was a fine quarter. cRPO (calculated remaining performance obligations - leading growth indicator) beat by 0.4% (essentially in line), total RPO beat by 2.8%, subscription rev beat by 0.3% (in line), total revenue beat by 0.6%, adjusted EBIT beat by 5%, and FCF beat by 24%. Subscription revenue grew 24.5% yoy (constant currency), which is healthy and not much of a deceleration from last quarter's 25.5% yoy (constant currency) growth.
Overall, the company is growing at a healthy pace at scale and growing profitably. Small expectations misses can cause some share price volatility in the short term as the market wrestles with valuation for a fairly expensive company, and this is what we're witnessing.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy ServiceNow? Find out by reading the original article on StockStory, it's free.
What is the market telling us: ServiceNow's shares are quite volatile and over the last year have had 2 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 2 months ago, when the company gained 5.6% as chip and AI stocks surged alongside broader market gains, with the Nasdaq rising by 2.1%, the S&P 500 by 1.5%, and the Dow gaining 0.57% following Nvidia (NASDAQ:NVDA)'s outstanding earnings results. During its Q4'2024 earnings, Nvidia reported impressive topline results (7.6% revenue beat), big gross margin improvement, and EPS outperformance vs. Wall Street's estimates. Notably, revenue grew 265% year-on-year and 22% sequentially during the quarter.
The strong topline performance was mostly driven by the data center segment, which was up 409% year-over-year and 27% sequentially as demand for Nvidia processors optimized for generative AI, LLMs (large language models), and other AI workloads continued to accelerate. The company estimated that roughly 40% of Data Center revenue was driven by AI-related applications.
Guidance for the next quarter was also good, with revenue, gross margin, and implied operating profit coming in ahead of expectations.
Overall, Nvidia's strong performance during the quarter highlighted the growing demand for AI-related technology and demonstrated the abundant growth opportunity for innovators within the space.
ServiceNow is up 2.5% since the beginning of the year, but at $704.06 per share it is still trading 13.4% below its 52-week high of $812.94 from February 2024. Investors who bought $1,000 worth of ServiceNow's shares 5 years ago would now be looking at an investment worth $2,703.