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On Friday, BMO Capital Markets adjusted its financial outlook for ServiceNow (NYSE:NOW), reducing the stock’s price target from $1,185.00 to $990.00, while maintaining an Outperform rating on the company’s shares. The stock, currently trading at $774.07, has experienced a challenging period with a nearly 27% decline year-to-date. According to InvestingPro data, ServiceNow maintains impressive gross profit margins of 79.18% and is recognized as a prominent player in the Software (ETR:SOWGn) industry.
The adjustment by BMO Capital Markets analyst Keith Bachman reflects concerns over a weaker U.S. Federal Reserve and potential threats to global GDP growth stemming from new tariffs. The analyst noted the significance of the Federal Reserve for ServiceNow, stating that it accounts for about 10% of the company’s Annual Contract Value (ACV) and subscription revenues. Despite these concerns, InvestingPro analysis shows ServiceNow maintaining strong revenue growth of 22.44% over the last twelve months, with analysts forecasting 19% growth for the upcoming fiscal year. Bachman provided scenarios that considered the impact of a slowdown in Federal Reserve growth on ServiceNow’s calendar year 2025 subscription revenue growth.
ServiceNow, a provider of digital workflow solutions, has been identified as potentially vulnerable to broader economic issues that could affect IT demand. The new tariffs introduced are seen as a risk to global GDP growth and, by extension, to the demand for IT services, which could impact ServiceNow’s business.
Despite these concerns, BMO Capital has chosen to maintain an Outperform rating for ServiceNow. The firm’s analyst expressed a continued positive outlook on the stock but acknowledged the need to adjust the price target to $990 in light of the current economic environment.
Bachman’s commentary highlighted the dual factors influencing the revised price target: "Given the backdrop of weaker US Fed, and broader risk to global GDP growth from tariffs, we are lowering our target price for NOW. In particular, we believe that Fed is about 10% of ACV and subscription revenues, and we offer some scenarios on slowing Fed growth impact to NOW CY25 subscription rev growth. More broadly, the spate of new tariffs raises the risk for global GDP growth and thus of IT demand trends, including for NOW. We retain our Outperform rating and our new target price is $990."
In other recent news, ServiceNow Inc. reported its Q4 2024 earnings, showcasing a 94% year-over-year revenue increase, reaching $10.9 million. The company’s EBITDA surged by 420%, reflecting strong operational performance, with a maintained gross profit margin of 52%. ServiceNow’s financial results highlight strategic partnerships with tech giants like Google (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT), emphasizing its focus on data and AI technologies. Additionally, ServiceNow announced plans to acquire Logik.ai to enhance its CRM capabilities, specifically in Sales and Order Management. This acquisition is expected to streamline sales processes and improve efficiency for sales organizations. The integration of Logik.ai’s AI-powered CPQ technology is positioned as a natural progression in ServiceNow’s strategy, complementing its recent Yokohama platform release. The transaction is subject to customary closing conditions and regulatory approvals. These developments indicate ServiceNow’s continued focus on innovation and strategic growth in the tech industry.
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