Goldman Sachs has maintained a bullish outlook on ServiceNow (NYSE: NYSE:NOW), increasing the stock's price target to $1,050 from the previous $1,000, while reiterating a Buy rating.
The adjustment follows ServiceNow's impressive performance on critical financial metrics.
ServiceNow reported a 200 basis points outperformance on Subscription Revenue and a 150 basis points beat on cRPO (constant currency), which resonated with Goldman Sachs' third-quarter forecasts.
Despite the stock being range-bound after hours, touching a multi-year high valuation at 44 times EV/FCF for FY25, the firm's stance on ServiceNow remains positive.
The analyst highlighted ServiceNow's third consecutive quarter of beating and raising expectations, noting significant deal momentum driven by an expanding Gen-AI portfolio, which is estimated to have contributed over $100 million in Annual Contract Value in the third quarter.
Additionally, a substantial increase in hiring within Sales & Marketing and Research & Development, with a 94% year-to-date rise in combined headcount, signals strong confidence in future demand.
ServiceNow's go-to-market execution was also praised, with 96 deals exceeding $1 million, marking a 16% increase. This growth is attributed to multi-product adoption and subscription up-tiering. The firm's third-quarter net new cRPO improved by 2.5 times compared to the previous year, bolstered by robust momentum in the Public Sector and a solid Commercial performance.
Looking forward, Goldman Sachs is confident in ServiceNow's ability to sustain over 20% Subscription Revenue growth into calendar year 2025. This expectation is further supported by a fourth-quarter cRPO guidance that is 50 basis points above consensus at 21.5%.
In other recent news, ServiceNow reported a robust Q3 growth, with subscription revenue reaching $2.715 billion, marking a 22.5% increase year-over-year. The company's Remaining Performance Obligations (RPO) also saw a significant rise, growing by 33% year-over-year to approximately $19.5 billion.
This indicates a strong demand for ServiceNow's services. Furthermore, the company has raised its full-year 2024 subscription revenue forecast to between $10.655 billion and $10.66 billion, exceeding its previous guidance by 200 basis points.
ServiceNow has also announced the appointment of Amit Zavery as President, Chief Product Officer, and COO, a move that fortifies its leadership team. In response to recent developments, analysts from Jefferies, represented by Samad Samana, expressed interest in the strategic hiring of Zavery, emphasizing his expected contribution to product development and innovation.
These developments are part of ServiceNow's recent trajectory, which includes securing 96 deals with over $1 million in net new ACV, and introducing significant innovations like Now Assist and RaptorDB to enhance its AI capabilities.
InvestingPro Insights
ServiceNow's strong performance, as highlighted by Goldman Sachs, is further supported by real-time data from InvestingPro. The company's impressive gross profit margin of 79.07% for the last twelve months as of Q2 2024 aligns with the InvestingPro Tip noting "impressive gross profit margins." This metric underscores ServiceNow's efficiency in managing costs while maintaining robust revenue growth.
The company's revenue growth of 24.17% over the same period reflects its continued expansion and market penetration, supporting Goldman Sachs' projection of sustained 20%+ subscription revenue growth into 2025. Additionally, ServiceNow's strong market position is evident in its substantial market capitalization of $186.85 billion.
InvestingPro Tips also indicate that ServiceNow is "trading near its 52-week high" and has shown a "high return over the last year," with a one-year price total return of 63.73%. These metrics align with the stock's positive performance and Goldman Sachs' increased price target.
For investors seeking a more comprehensive analysis, InvestingPro offers 17 additional tips for ServiceNow, providing deeper insights into the company's financial health and market position.
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