ServiceNow Inc. (NYSE:NOW) experienced a significant stock price drop Thursday, declining over 8% in premarket trading, despite announcing fourth-quarter earnings that exceeded analyst forecasts. Investors appeared cautious following the release of financial results after the market close on Wednesday.
During the quarter, ServiceNow reported revenue nearing $3.57 billion, marginally beating the consensus estimate of $3.53 billion, according to Benzinga Pro data. Adjusted earnings per share came in at 92 cents, outperforming the analyst projection of 88 cents. This outcome represents a year-over-year total revenue increase of approximately 20.5%, with subscription services contributing a 21% growth over the same period.
Moreover, the company reported its remaining performance obligations—a measure of contracted but unrecognized revenue—at $28.2 billion at the end of the quarter, marking a 26.5% rise compared to the previous year. Such figures underscore strong demand and a healthy sales pipeline.
Looking ahead, ServiceNow anticipates subscription revenue for the upcoming first quarter to range between $3.65 billion and $3.655 billion. For fiscal year 2026, the company projects subscription revenue in the $15.53 billion to $15.57 billion bracket, reflecting an estimated 21% year-over-year increase, continuing its pattern of robust growth in its core business.
Share repurchase activity also characterized the quarter, with ServiceNow buying back about 3.6 million shares for roughly $597 million. The board further authorized an additional $5 billion for share repurchases, signaling confidence in the company's valuation and future prospects.
In terms of strategic developments, ServiceNow disclosed a new collaboration with Anthropic to incorporate Claude AI models into its core workflows. This initiative is aimed at enhancing the company’s technological capabilities and service offerings.
Despite such positive operational demonstrations, ServiceNow's stock performance revealed some underlying challenges. The company’s valuation, as indicated by its price-to-earnings ratio, remains at a premium compared to peers, reflective of investor expectations on growth potential. Current projections include an anticipated 11% decrease in earnings, contrasting with strong growth estimates and a consensus recommending a Buy rating with an average price target of $784.30.
Banking firms have adjusted their price targets recently. Jefferies and Citigroup downgraded their targets to $175 and $235, respectively, while BTIG maintained a $200 target, all retaining a Buy rating on the shares.
Benzinga Edge rankings offer further insight into the stock's profile: it holds a high growth rank of 82.28, indicating robust expansion potential, while its quality rank is moderate at 53.04, suggesting a solid balance sheet health position. However, the momentum rank stands low at 3.82, reflecting underperformance against the broader market, and its value rank is 11.43, signaling the stock trades at a substantial premium versus comparable companies.
The decline in shares amid positive earnings results illustrates a complex dynamic where market sentiment, valuation concerns, and earnings guidance interplay in investor decision-making.