On Monday, ServiceNow (NYSE: NYSE:NOW) saw its stock price target increased by Needham, a financial services firm, from the previous $1,075.00 to a new target of $1,150.00. The firm has maintained a "Buy" rating on the company's stock. This update follows a recent investor meeting in New York City, where ServiceNow's upcoming renewal cycle and product pricing were discussed.
During the meeting, the 2025 calendar year (CY25) renewal cohort was a key point of focus. It is anticipated to be larger than in previous years, which could put pressure on calculated Remaining Performance Obligations (cRPO) growth through the first three quarters.
However, a potential upside is expected in the fourth quarter as customers renew their subscriptions. The renewal cycle may also be positively influenced as customers transition to ServiceNow's Xanadu platform, which now includes GenAI capabilities and the Pro Plus product.
The discussion also covered the pricing strategy for Pro Plus, ServiceNow's product offering. The pricing has been described as disciplined and is reportedly on track, if not ahead, of the management's targeted uplift of approximately 30%. This suggests a strong alignment with the company's pricing objectives and potential for revenue growth.
Furthermore, the investor meeting touched upon the topic of Subscription Gross Margin, which is likely to face some pressure in the upcoming year. Despite this, the margins are considered to be appropriately modeled by Needham. The consensus indicates a slight compression in Subscription Gross Margin, from 84.7% in the 2024 calendar year (CY24) to 84.1% in CY25.
ServiceNow's stock adjustment reflects the firm's confidence in the company's ability to navigate the challenges and opportunities of the upcoming renewal cycle, as well as its pricing strategies and margin outlook. The new price target suggests that Needham sees continued value in ServiceNow's offerings and market position.
In other recent news, ServiceNow has been in the spotlight with several significant developments. The company's third-quarter subscription revenue saw a 22.5% year-over-year increase, reaching $2.715 billion. Moreover, the full-year 2024 subscription revenue forecast has been revised upwards to between $10.655 billion and $10.66 billion.
Scotiabank (TSX:BNS) has initiated coverage of ServiceNow with a Sector Outperform rating and a price target of $1,230, underlining the company's success in leveraging artificial intelligence (AI) through its GenAI SKU, Pro Plus.
ServiceNow's Pro Plus product, which utilizes Generative AI, has demonstrated significant market success, surpassing $100 million in Annual Contract Value (ACV) in less than a year. This achievement is underscored by the acquisition of substantial reference customers. Furthermore, ServiceNow has deepened its strategic alliance with Microsoft (NASDAQ:MSFT), integrating its AI agent with Microsoft Copilot to enhance front-office business processes.
Several analyst firms, including Mizuho (NYSE:MFG) Securities, TD Cowen, Piper Sandler, and Stifel, have raised their price targets for ServiceNow, reflecting confidence in the company's growth trajectory. This confidence stems from ServiceNow's robust performance and the success of its GenAI technology.
Other recent developments include extended collaborations with industry leaders NVDA and SNOW, the appointment of Amit Zavery as President, COO, and CPO, and continued operations in the federal sector despite potential concerns arising from its partnership with Carahsoft.
InvestingPro Insights
ServiceNow's strong market position and growth prospects, as highlighted in Needham's analysis, are further supported by recent data from InvestingPro. The company's impressive gross profit margin of 79.24% for the last twelve months as of Q3 2024 aligns with the discussion on Subscription Gross Margin in the investor meeting. This metric underscores ServiceNow's ability to maintain profitability despite potential pressures.
InvestingPro Tips indicate that ServiceNow is a prominent player in the Software (ETR:SOWGn) industry, which corroborates its market leadership position. The company's revenue growth of 23.48% over the last twelve months also supports the positive outlook on its pricing strategy and potential for continued expansion.
It's worth noting that ServiceNow is trading near its 52-week high, with a substantial 57.38% price return over the past year. This performance aligns with Needham's increased price target and "Buy" rating. However, investors should be aware that the stock is trading at high valuation multiples, including a P/E ratio of 162.88, which may reflect the market's high expectations for future growth.
For readers interested in a more comprehensive analysis, InvestingPro offers 19 additional tips for ServiceNow, providing a deeper understanding of the company's financial health and market position.
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