Today's significant drop in ServiceNow's stock value.
ServiceNow's shares are taking a hit in today's trading, with a 11.3% dip as of 3:30 p.m. ET. The software giant experienced a more substantial drop of 13.5% earlier in the day's session. The reason behind this sell-off? Relatively tame forward guidance from the company, despite Q4 earnings that surpassed expectations.
Though ServiceNow reported non-GAAP earnings per share of $3.67 on revenue of $2.96 billion in Q3, up by 21% year over year, and subscription sales boasting a similar hike, investors were hoping for a more substantial beat and stronger growth projections. The company's Q4 revenue was harmonious with Wall Street's expectations, but the guidance left a lot to be desired.
ServiceNow's guidance for the current quarter calls for sales between $2.995 billion and $3 billion, representing a 18.75% growth at the midpoint. For the full year, the company anticipates sales between $12.635 billion and $12.675 billion, which corresponds to a 18.75% growth at the midpoint of the range. The projected subscription gross profit margin is 82%, with a free-cash-flow margin target of 32%.
Investors, however, were hoping for more vigorous growth, particularly in the context of the company's AI services and federal contract wins. Technical factors also contributed to the stock's slide; as of 3:30 p.m. ET, ServiceNow was trading below the 50-day moving average, albeit above the 200-day moving average, which suggests a dichotomous trend that doesn't fully reflect the strong fundamentals.
However, the pullback in the valuation could be a lucrative buying opportunity for long-term investors. Despite the temporary setback, the company's strong Q4 results and robust demand for its AI-powered business transformation and workflow management services underscore ServiceNow's long-term potential.
Given ServiceNow's disappointing guidance despite surpassing Q4 earnings expectations, some investors might be inclined to reconsider their financial strategy and explore opportunities for investing more money into the company's stock, seeking to capitalize on the potential undervaluation. In the realm of finance, a dip in a stock's price can sometimes present an attractive entrance point for diligent and forward-thinking investors.
