Guggenheim raises ServiceNow stock price target to $724

On Thursday, Guggenheim maintained a Sell rating on ServiceNow (NYSE:NOW) stock but raised the price target to $724 from $716. The firm’s analysis of the $168 billion market cap company indicated that ServiceNow’s first-quarter results for 2025 were generally in line with expectations, although there were indications of underlying challenges. The company’s subscription growth for the quarter was reported at 20% on a constant currency (cc) basis, slightly above their guidance of 19.5-20%. Additionally, the calculated Remaining Performance Obligations (cRPO) growth of 22% exceeded the guidance of 20.5%, with a benefit of 50 basis points from early renewals. According to InvestingPro data, ServiceNow maintains impressive gross profit margins of 79.2% and has achieved revenue growth of 22.4% over the last twelve months.

ServiceNow’s adjusted New Annual Contract Value (ACV), considering foreign exchange (FX) impacts and early renewals, was found to be 18% below the midpoint of what Guggenheim had modeled. In terms of guidance, ServiceNow’s second-quarter outlook surpassed Wall Street expectations and appeared to be risk-adjusted. However, while the annual guidance increased by $5 million due to the reported beat, it also included a $39 million benefit from FX changes since the original guidance was set. This implies that the annual cc subscription guidance was effectively lowered by $34 million. InvestingPro analysis suggests the company is currently trading near its Fair Value, with analyst price targets ranging from $716 to $1,300.

Despite the adjustments, Guggenheim suggests that there is still significant risk to the company’s performance, which may be equal to or greater than at the start of 2025. The firm views the recent results and future guidance, contrasted with management’s positive commentary, as a reflection of ServiceNow’s core business, which is transitioning to a lower growth phase. The departure of Go-To-Market Lead Paul Smith, along with the earlier exit of Product Lead C.J. Desai, was also noted as a potential concern.

The stock is expected to rally following after-hours trading, driven by management’s emphasis on AI developments, even though Guggenheim believes the financial numbers do not fully support this optimism. With the transition to growth in the teens, the firm views ServiceNow’s valuation at 14 times Enterprise Value (EV) to Recurring Revenue and 41 times EV to Next (LON:NXT) Twelve Months (NTM) Free Cash Flow—or 57 times when adjusted for share repurchases—as overvalued.

In other recent news, ServiceNow has reported impressive first-quarter earnings for 2025, with non-GAAP earnings per share reaching $4.04, surpassing the consensus estimate of $3.83. The company’s revenue also slightly exceeded forecasts, coming in at $3.088 billion. This performance was highlighted by a robust 22% year-over-year growth in current remaining performance obligations (cRPO), significantly beating consensus estimates. In light of these results, analysts from Stifel and Evercore ISI have raised their price targets for ServiceNow to $975 and $1,000, respectively, maintaining positive outlooks. JMP analysts reaffirmed a Market Outperform rating with a $1,300 price target, further underscoring the company’s strong financial health.

In addition to financial updates, ServiceNow has entered a strategic partnership with Devoteam to modernize customer relationship management (CRM) across Europe, the Middle East, and Africa. This collaboration aims to leverage ServiceNow’s AI capabilities to enhance CRM strategies in the region. However, ServiceNow is also facing challenges with product pricing and adoption rates, as some customers find the license costs high and half of the products remain unused a year after purchase. Despite these hurdles, system integrators believe adoption improves over time, suggesting potential for future growth in product utilization.

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