ServiceNow experienced a significant stock price decline due to a weaker-than-expected profitability forecast, despite reporting robust sales growth for the first quarter.
Analysts had projected an adjusted profit of $0.97 per share for the enterprise software company. Revenue reached $3.77 billion, marking a 22% year-over-year increase and surpassing analyst expectations. The remaining performance obligation grew by 25% to $27.7 billion, indicating sustained strong demand.
Investor focus centered on profitability metrics. ServiceNow anticipates a full-year subscription gross margin of 81.5%, which is lower than the previous forecast of 82.1%. The company attributed this revision to recent acquisitions but expects the gap to narrow by 2027.
Despite ongoing sales growth, investor concerns over margins led to a 14% drop in the company's share price in after-hours trading. ServiceNow also noted that the ongoing crisis in the Middle East caused delays in some deals, impacting subscription revenue growth.
While facing these near-term challenges, ServiceNow raised its subscription revenue guidance for both the second quarter and the full year. This upward revision is attributed to solid performance in its core business and AI-driven products. As integration costs decrease and growth from acquisitions accelerates, investors will continue to monitor the trajectory of the company's profit margins closely.
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