NOW Raises '25 Subscription Sales Outlook: Buy or Hold the Stock?

Core Insights - ServiceNow's subscription revenues have increased by 21% over the trailing nine-month period in 2025 compared to the previous year, driven by growing demand for its workflows [1] - The company raised its subscription revenue guidance for 2025 to between $12.835 billion and $12.845 billion, indicating a growth of approximately 20% year-over-year [2] - ServiceNow shares have underperformed, dropping 17.9% over the past year, while competitors like Oracle and SAP have seen positive returns [3] Subscription Revenue Performance - Subscription revenues account for roughly 97% of ServiceNow's total revenues, reflecting strong demand [1] - The growth rate for subscription revenues in 2025 is expected to be slower than the 23% growth rate seen in 2024 [2] Market Position and Competition - ServiceNow's stock has been affected by challenging macroeconomic conditions and increased competition, particularly from companies like Workday, Oracle, and SAP [3][7] - The stock is currently trading at a premium with a forward 12-month price/sales ratio of 11.7X, compared to the broader sector's 6.91X [8] Customer Growth and Transactions - In Q3 2025, ServiceNow had 103 transactions exceeding $1 million in net new annual contract value (ACV), with six transactions over $10 million [13] - The number of customers contributing over $5 million in ACV reached 553, with a more than 20% year-over-year increase in customers contributing $50 million or more [13] Industry Trends and Partnerships - Net new ACV in transportation and logistics grew over 90% year-over-year, with significant growth also seen in retail, hospitality, and education sectors [17] - ServiceNow's partnerships, particularly with NVIDIA, are enhancing its AI workflow capabilities, which may help mitigate some macroeconomic challenges [18] Earnings Estimates - The Zacks Consensus Estimate for Q4 2025 earnings is $4.35 per share, reflecting an 18.53% growth year-over-year, although it has seen a slight downward revision [19] - Positive trends are noted for 2025 and 2026 earnings estimates, with expected growth rates of 24.21% and 16.66%, respectively [20] Conclusion - ServiceNow's expanding portfolio and growing workflow adoption are expected to enhance top-line growth, despite concerns regarding macroeconomic conditions and valuation [21]