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Tuesday, ServiceNow shares (NYSE: NYSE:NOW), currently trading at $735.50 with a market capitalization of $151.5 billion, saw their price target lowered from $1,200.00 to $1,000.00 by Raymond (NSE:RYMD) James, while the firm maintained an Outperform rating on the stock. The adjustment comes as the company prepares for its 2025 Knowledge user conference and financial analyst day scheduled for May 6-8. According to InvestingPro data, the stock has experienced significant pressure, down over 30% year-to-date, suggesting potential value opportunities for investors looking at the long term.
Raymond James analysts have reiterated their positive outlook on ServiceNow, noting that the upcoming event is expected to focus heavily on AI and agentic adoption, which could drive significant discussions. The company's impressive gross profit margin of 79.18% and strong revenue growth of 22.44% support this optimistic stance. The firm has made slight modifications to its model to better account for margin seasonality associated with the event, though the forecast for the full year remains largely unchanged.
ServiceNow's decision to include agentic capabilities in its Pro+ tier, rather than offering a separate product, has been identified as a potential challenge to growth metrics such as cRPO, which is trending towards a sub-20% growth rate. Despite this, Raymond James suggests that patient investors might reap rewards if the strategy leads to accelerated AI adoption and the acquisition of key reference customers.
The conference is also expected to showcase early adopters of ServiceNow's offerings, with a keen interest in learning about their experiences, particularly regarding the repurchase intentions and token burn down rates. The public sector's performance, with over $1.5 billion in annual contract value and 30% year-over-year growth in 2023, will likely be a topic of debate, especially in the context of the current DOGE world and the potential for heightened second-half linearity due to U.S. Federal business. For detailed analysis of ServiceNow's market position and growth metrics, InvestingPro subscribers can access comprehensive research reports covering over 1,400 top US stocks.
The firm acknowledges the challenges faced by ServiceNow in the public sector, particularly as most investors consider the stock uninvestable until the end of the third fiscal quarter, which coincides with the Federal fiscal year-end. Nevertheless, the potential opportunities arising from workflow and automation efficiencies across various agencies are also highlighted, alongside the contractual inability for customers to reduce their number of seats mid-contract, which could mitigate some concerns. Insights from independent software vendors at the conference regarding their experiences with ServiceNow in the public sector are anticipated to provide further clarity. With a solid financial health score and moderate debt levels, as reported by InvestingPro, the company appears well-positioned to navigate these challenges.
In other recent news, ServiceNow reported impressive financial results for Q4 2024, with revenue increasing by 94% year-over-year to $10.9 million and a notable 420% rise in EBITDA, signaling robust operational performance. The company also announced its intent to acquire Logik.ai, aiming to enhance its CRM capabilities and streamline sales processes, subject to customary closing conditions and regulatory approvals. BMO Capital Markets adjusted its price target for ServiceNow to $990 from $1,185 while maintaining an Outperform rating, citing concerns over potential economic impacts on IT demand. Despite these concerns, the firm remains optimistic about ServiceNow's prospects. Additionally, ServiceNow's strategic partnerships with tech giants like Google (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) were emphasized, highlighting the company's focus on data and AI technologies. The company aims for a $50 million revenue run rate and a $10 million EBITDA run rate, with no current plans for capital raises, indicating confidence in its financial stability. These developments reflect ServiceNow's continued strategic advancements and strong financial performance.
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