Analysts positive on ServiceNow following results despite cRPO concerns

© Reuters.

By Sam Boughedda

ServiceNow (NYSE:NOW) shares are up over 2% following its earnings release after the close on Wednesday, which saw it top profit and revenue consensus expectations.

Analysts at Wells Fargo and Bernstein released notes, reacting to the report positively, but believing there may be some slight concerns regarding cRPO growth.

Bernstein maintained an Outperform rating on ServiceNow shares but cut price target on the stock to $586 from $641, saying the company’s results were “nuanced.”

“ServiceNow beat on most dimensions of their FQ4'22 guide, and offered 2023 revenue guide on consensus' conservative end, while detailing why that was derisked and a floor,” Bernstein analysts said.

However, they noted that the company missed with “the metric closely watched by many analysts,” cRPO growth.

“As a result, much of the earning's Q&A focused on why this was NOT a negative signal for future growth,” the analysts wrote. “And we agree (it is one of the reasons we aren't a huge fan of cRPO as a metric): the miss only occurred because fewer early renewals occurred. There was no increased churn, renewal NRR actually came in larger than anticipated, new customer wins were above expectation, Europe did better than plan, etc.”

Wells Fargo analysts told investors, “don’t fight the fundamentals,” in their note on ServiceNow.

Q4 was “mostly clean,” they said. However, the analysts noted that the one metric they expect to field the most questions around is cRPO, which grew +25.5% and was impacted by less early renewal activity, with the company adding color that NNACV outperformed expectations.

Wells Fargo cut its price target on ServiceNow to $550 from $575 but maintained an Overweight rating on the stock.