ServiceNow Drops 16% Year to Date: Should You Still Buy the Stock?

Core Insights - ServiceNow (NOW) shares have decreased by 16.1% year to date (YTD), underperforming the Zacks Computer and Technology sector which has returned 19.6% [1][9] - The decline is attributed to macroeconomic challenges and competition from companies like Workday, Oracle, and Pegasystems [2][9] - ServiceNow has raised its subscription revenue guidance for 2025 to between $12.775 billion and $12.795 billion, indicating a growth rate of 19.5-20% on a non-GAAP constant currency basis, which is slower than the 23% growth rate expected for 2024 [3][9] Financial Performance - For Q3 2025, ServiceNow anticipates subscription revenues between $3.26 billion and $3.265 billion, suggesting a year-over-year growth of 19.5% at constant currency [7] - The Zacks Consensus Estimate for Q3 2025 subscription revenues is pegged at $3.26 billion, indicating a 20.2% growth from the previous year [7] - The Zacks Consensus Estimate for 2025 earnings is $16.82 per share, reflecting a 20.83% growth from 2024, while the 2026 estimate is $19.84 per share, suggesting a 17.94% growth over 2025 [21][22] Valuation and Market Position - ServiceNow stock is currently trading at a premium, with a forward 12-month price/sales ratio of 12.31X compared to the sector's 6.73X and competitors like Workday at 6.03X and Oracle at 11.56X [10] - The company has a Value Score of F, indicating a stretched valuation at this moment [8] Growth Drivers - ServiceNow's workflows are gaining traction, with significant deals in technology workflows and core business workflows [13][14] - The company has closed 89 deals greater than $1 million in net new annual contract value (ACV) in the reported quarter [14] - The introduction of the AI-powered Zurich platform and partnerships with NVIDIA, AWS, and Cisco are expected to drive growth [9][17][20] Strategic Collaborations - ServiceNow's collaboration with NVIDIA aims to enhance employee support through AI, while partnerships with AWS and Cisco focus on data integration and AI risk management [18][20] - The Workflow Data Fabric is included in many of ServiceNow's largest deals, combining data, analytics, and AI to improve enterprise outcomes [15][19] Investment Outlook - The expanding portfolio, growing workflow adoption, and positive earnings estimate revisions are expected to enhance top-line growth, justifying the premium valuation [23]