Buy, Sell or Hold ServiceNow Stock? Key Tips Ahead of Q2 Earnings

Core Insights - ServiceNow (NOW) is set to announce its second-quarter 2025 results on July 23, with expected revenues of $3.12 billion, reflecting an 18.79% increase year-over-year [1] - The consensus estimate for earnings per share is $3.54, indicating a growth of 13.1% compared to the previous year [1] Revenue and Earnings Expectations - ServiceNow anticipates second-quarter 2025 subscription revenues of $3.031 billion, representing a 20% year-over-year growth on a non-GAAP basis [4] - The Zacks Consensus Estimate for subscription revenues is $3.03 billion, indicating a 20.2% year-over-year increase [4] Customer Growth and AI Integration - In Q1 2025, ServiceNow acquired 508 customers generating over $5 million in annual contract value (ACV), marking a 20% year-over-year growth [5] - The company had 72 transactions exceeding $1 million in net new ACV, with momentum expected to continue into Q2 2025 [5] Market Position and Performance - ServiceNow's shares have declined 9.2% year-to-date (YTD), slightly outperforming the Zacks Computer & Technology sector's return of 9.1% but lagging behind the Zacks Computers – IT Services industry's decline of 10.2% [8] - Since the first quarter of 2025, ServiceNow shares have returned 18.5%, underperforming the sector's return of 28.9% but outperforming the industry's appreciation of 7.8% [12] Valuation Concerns - ServiceNow's Value Score of F indicates a stretched valuation, with a forward 12-month Price/Sales (P/S) ratio of 13.92X, significantly higher than the sector's 6.69X [16][17] Strategic Developments - The company is leveraging AI and machine learning to enhance its solutions, with the introduction of the Core Business Suite aimed at streamlining operations across various departments [19] - ServiceNow has launched AI agents in its Security and Risk solutions, collaborating with Microsoft and Cisco to improve enterprise security [20] - Recent partnerships with major companies like Amazon and NVIDIA are aimed at enhancing data integration and AI capabilities [21][22] Acquisitions and Portfolio Expansion - ServiceNow's acquisition of Logik.ai in April 2025 is expected to strengthen its CRM offerings by integrating advanced AI capabilities [23] - The acquisition of Moveworks aims to combine ServiceNow's automation strengths with Moveworks' AI assistant technology [23] Long-term Outlook - The robust GenAI portfolio and strong partner base are anticipated to drive subscription revenues in the long term, despite tariff-related headwinds and valuation concerns [24]