ServiceNow stock slips as earnings forecast fails to wow Wall Street

Analysts on average expected adjusted earnings of $1.39 a share on sales of $1.48 billion, according to FactSet.

Investors tend to judge ServiceNow on its subscription revenue, which comprises nearly its entire sales total, and billings, which represents contracted revenue in the quarter. In the third quarter, ServiceNow reported subscription revenue of $1.43 billion and subscription billings of roughly $1.38 billion, while analysts were expecting $1.41 billion and $1.32 billion, respectively.

ServiceNow shares declined more than 2% in after-hours trading immediately following the release of the results, after closing with a 1.8% decline at $664.76. The disappointment seemed to stem from an in-line forecast that analysts had highlighted as the most important offering within the report, while looking for a big beat.

Heading into the print, analysts reported whispers that the fourth quarter would be more important to the company’s second-half performance than the third. UBS analysts wrote earlier this week that “ServiceNow has already prepped the Street to expect more of a 4Q skew,” and Jeffries analysts wrote that “the buy-side is primarily focused on 4Q guidance.”

“With ServiceNow’s valuation near [all-time highs], investors seem focused on whether ServiceNow can deliver robust 4Q guidance against a tough comp
and already-high expectations,” wrote the Jefferies analysts, who have a buy rating and $675 price target on the stock.

ServiceNow guided for fourth-quarter subscription revenue of roughly $1.52 billion and billings of roughly $2.31 billion, while analysts an average were expecting $1.51 billion and $2.31 billion respectively, according to FactSet.

ServiceNow’s stock has gained 20.6% so far this year, slightly behind the gain of 21.8% for the S&P 500 index SPX, -0.51%, which counts ServiceNow as a component.