ServiceNow (NOW) Future Subscription and RPO Growth Despite Tariffs In Focus

$ServiceNow(NOW)$ is scheduled to announce its financial results for the first quarter ended 31 March 2025, after the market closes on Wednesday, 23 April 2025.

The consensus estimate we are seeing for adjusted EPS estimates, is $3.83 which represent an increase of 11.1% YoY, but there are some analysts who are anticipating EPS to be around $2.01 to $2.02 (representing approximately 10.4% year-over-year growth from $1.82 in Q1 2024).

The specific metric (GAAP vs. Non-GAAP/Adjusted) can vary between sources.

ServiceNow total revenue is expected to be around $3.08 billion, indicating an 18.4% increase year-over-year. For the main revenue contributor,  Subscription Revenue is forecasted to be near $3.00 billion, representing roughly 18.8% year-over-year growth.

ServiceNow current Remaining Performance Obligations (cRPO) is expected to reach approximately $10.10 billion, up from $8.45 billion in the prior-year quarter.

ServiceNow (NOW) Last Positive Earnings Call Saw Share Price Decline By 30.34%

ServiceNow had a positive earnings call on 29 Jan 2025 which saw its share price declined by 30.34%.

The earnings call highlighted ServiceNow's strong performance and strategic growth in AI and partnerships, with robust financial metrics and positive future outlook. However, some challenges such as federal business seasonality, tax headwinds, and FX impacts were noted, but these are outweighed by the positive achievements and plans.

ServiceNow reported Q4 2024 adjusted EPS of $3.67, slightly beating estimates. Q4 revenue was roughly $2.96 billion (up 23% YoY), in line with estimates. However, Q4 subscription revenue of $2.87 billion (up 21% YoY) slightly missed analyst forecasts ($2.88 billion) and the company's prior guidance range.

ServiceNow (NOW) Guidance

During the call, ServiceNow provided robust guidance for the first quarter and full year 2025, emphasizing their strategic shift towards incorporating more consumption-based monetization for AI and data solutions. They projected subscription revenues between $12.635 billion and $12.675 billion, reflecting a 20% year-over-year growth at constant currency. The company highlighted their 29.5% operating margin for 2024 and projected a 30.5% operating margin for 2025, alongside a free cash flow margin of 32%. Notably, they reported a remaining performance obligation (RPO) of $22.3 billion, representing a 26% year-over-year growth. ServiceNow also discussed their strategic focus on AI, particularly their Pro Plus AI offerings, which saw 150% quarter-over-quarter deal growth, and their plans to leverage AI to enhance customer and employee workflows, driving significant efficiency gains and positioning themselves as a leader in enterprise AI solutions.

ISRG provided Q1 2025 subscription revenue guidance of $2.995 billion to $3.00 billion (18.5%-19% YoY growth) and full-year 2025 guidance of $12.64 billion to $12.68 billion. Both figures were slightly below analyst expectations at the time.  

Following the Q4 report and the softer guidance, ServiceNow's stock price experienced a significant drop (around 11-12%).

ServiceNow (NOW) Price Target

Based on 33 Wall Street analysts offering 12 month price targets for ServiceNow in the last 3 months. The average price target is $1,074.20 with a high forecast of $1,426.00 and a low forecast of $716.00. The average price target represents a 34.84% change from the last price of $796.66.

Concerns mentioned include potential impacts from the Moveworks acquisition and foreign exchange headwinds ($40 million impact anticipated for Q1 2025 subscription revenue). ServiceNow plans to shift to a consumption-based pricing model for its AI and data solutions in 2025.  

Technical Analysis - Exponential Moving Average (EMA)

Despite the post-Q4 stock drop and some recent price target cuts by firms like Baird and Scotiabank, the overall analyst consensus rating for NOW remains bullish ("Strong Buy").  

ServiceNow’s Q1 2025 earnings will depend on its ability to sustain high growth rates in a maturing cloud market while balancing profitability and innovation. Its leadership in workflow automation and early AI integration position it well, but macroeconomic headwinds and competition remain risks.

From the technicals, we are seeing bears in control as attempt to create a daily uptrend last week resulted in potential sideway trading for next week, this might bring investors into a wait-and-see sentiment, as there are some impact already on AI software stocks with the chips sector being hit in incoming tariffs.

So NOW earnings might be an important indicator whether the CAPEX spending are going to be reduce, and whether companies have budgeted enough for OPEX. The RSI is showing weak momentum.

I do not see any significant price movement before NOW earnings for now.

Summary

In summary, while ServiceNow has consistently beaten earnings expectations in recent quarters, the focus for the upcoming Q1 2025 report will likely be on whether subscription revenue growth meets or exceeds the guidance provided in January, the updated outlook for the rest of 2025, and commentary on AI product adoption and the shift in pricing models.

As investors we might want to monitor:

1. Subscription revenue growth (guidance vs. consensus).

2. RPO (Remaining Performance Obligations): Indicator of future revenue visibility.

3. Commentary on AI adoption and large-deal pipelines.

Appreciate if you could share your thoughts in the comment section whether you think NOW would be able to show RPO improving and also large-deal pipelines not so much affected by the ongoing tariffs.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.