ServiceNow’s ‘solid’ Q3 and growth businesses keep Wall Street bullish

Analysts maintained largely positive views on ServiceNow (NYSE:NOW), following the company’s third quarter results and outlook which beat expectations.

ServiceNow’s stock rose about 1% premarket on Thursday.

BofA kept its Buy rating and $1,075 price target on the stock, noting that the company’s growth businesses are firing on all cylinders.

The analysts said that solid execution and end customer demand across the broad ServiceNow application suite drove another “solid beat and raise quarter.” The current Remaining Performance Obligation, or cRPO, (current bookings backlog) growth of 23.5% exceeded BofA’s 22% estimate.

The analysts found it impressive that incremental growth is also coming from newer customer and employee workflow offerings, delivering sustainable growth in key growth segments.

This suggests ServiceNow has made the right investment in categories that are resonating with customers today and over the longer term, the analysts added.

Morgan Stanley maintained its Equal-weight rating and $960 price target on the stock.

Analysts led by Keith Weiss said that positive commentary on adoption of Now Assist, which uses generative AI, and an expanding solution portfolio targeting the GenAI opportunity were offset by a decelerating third quarter cRPO and a guidance of further slowdown in the fourth quarter.

The analysts added that solid positioning for monetizing generative AI in 2025 looks well priced in the shares.

Third quarter cRPO growth of 23.5% exceeded consensus by 150 bps, but adjusted for duration decelerated about 100 bps from the level seen in the second quarter that could prove disappointing. In addition, the fourth quarter cRPO guidance of 21.5% was 50 bps ahead of consensus, but would represent further deceleration, according to the analysts.

Generative AI momentum remains strong with the GenAI powered ProPlus sku ramping faster than Pro did and ServiceNow’s touting that Now Assist has 44 customers spending more than $1M in annual contract value, or ACV, including six over $5M and two over $10M, the analysts added.

The analysts noted that ServiceNow saw year-over-year growth in Net New ACV in Federal in the third quarter, despite the tough compare.

“We didn’t see any impact in Q3, and we’re currently not involved in any issues regarding Carahsoft with the U.S. federal business,” ServiceNow’s Chairman and CEO William McDermott said on the company’s earnings call.

Last month, it was reported that the Federal Bureau of Investigation raided the Reston, Va.-based headquarters of Carahsoft.

Canaccord maintained its Buy rating and raised the price target on the stock to $1,000 from $850.

The analysts said that ServiceNow is proving to be an execution machine, and there is no shortage of shots on goal for future growth.

The analysts added that it is not easy to buy and own expensive stocks, but they know that well executing, expensive stocks with secular tailwinds can stay expensive for longer than one might think. They would love to Buy the stock on a pullback, but until that happens, the analysts continue to think that ServiceNow is a name which software investors need to have at least some exposure to.

Meanwhile, Stifel reiterated its Buy rating and increased the price target on the stock to $990 from $900, calling it a “Home Run Of A Quarter.”

RBC kept its Outperform rating and upped the price target on the shares to $1045 from $985.

The analysts said that against a high bar, third quarter showed a nice upside while 2024 subscription revenue guidance moved higher by more than the beat.

The execution remains impressive, and RBC thinks there were several positives from the quarter led by increasing platform strength, robust Pro Plus/Now Assist adoption, the introduction of Workflow Data Fabric, and a building pipeline into the year-end.

The analysts think that the tailwinds around GenAI monetization could likely increase in 2025.

RBC remains buyer of NOW as a top idea as it believes the company could see a stronger-than-expected fourth quarter budget flush.