What happened
Shares of ServiceNow (NOW -4.03%) were pulling back last month on a broad sell-off in tech stocks, as a strong first-quarter earnings report wasn't enough to counteract the shifting market sentiment. According to data from S&P Global Market Intelligence, the stock finished the month down 14%.
The stock mostly tracked with the the Nasdaq index for the month.
So what
Enterprise tech companies like ServiceNow are sensitive to the broader economy, as businesses tend to spend more in growing economies than in recessions.
Growing concerns about inflation, rising interest rates, and a potential recession have weighed on tech stocks like ServiceNow, especially as GDP declined in the first quarter, possibly signaling the start of a recession.
Image source: Getty Images.
There was little news out on ServiceNow through the first three weeks of the month, and the stock tracked with the slide in the Nasdaq as investors reacted to news that interest rates could rise faster than expected, with the Federal Reserve seeking to bring inflation to heel and cool off the economy.
ServiceNow stock actually jumped 8.1% on April 28, after the company delivered a strong first-quarter earnings report. Revenue increased 27% to $1.72 billion, matching estimates, and remaining performance operations jumped 29% to $5.69 billion, showing a strong backlog.
Profitability was also impressive, with a 25% operating margin, and adjusted earnings per share jumped from $0.37 to $1.73, ahead of estimates at $1.70. "ServiceNow delivered another outstanding performance that beat expectations across the board," CEO Bill McDermott said. "We are in a sustained demand environment. Companies are investing with a sense of urgency in technologies that get them to the right outcomes, fast."
Now what
Looking ahead, ServiceNow sees steady growth, calling for 26% subscription revenue growth in the second quarter and for the full year.
Like Salesforce and other large enterprise cloud tech stocks , ServiceNow has an excellent track record, having returned nearly 2,000% over the past decade.
Though some tech companies are seeing growth slow as COVID tailwinds fade, ServiceNow isn't experiencing any such problems, and the ongoing digital transformation in the corporate world should support the company's continued growth. At a price-to-earnings ratio close to 80, ServiceNow may be expensive, but the company has shown why it deserves a premium valuation.
