Shares of ServiceNow (NOW 9.75%) fell off a cliff Thursday morning, plunging as much as 12.7%. As of 1:21 p.m. ET, the stock was still down 12%.
The catalyst that sent the workflow automation and artificial intelligence (AI) specialist plummeting was its quarterly earnings report.
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For the fourth quarter, ServiceNow delivered revenue of $3.57 billion, an increase of 21% year over year and 20% in constant currency. This drove adjusted earnings per share (EPS) to $0.92, an increase of 24%.
For context, analysts' consensus estimates were calling for revenue of $3.53 billion and EPS of $0.88, so ServiceNow sailed past Wall Street's expectations.
Subscription revenue climbed 21% year over year, and the company's remaining performance obligation (RPO), which provides insight into future revenue, climbed 27% to $28.2 billion. The current portion of RPO, which will be recognized over the coming year, jumped 25% to $12.85 billion, putting a floor under ServiceNow's revenue for the next four quarters.
Despite delivering better-than-expected results, the stock is falling. Why? ServiceNow's focus on AI notwithstanding, investors fear competitors will be able to replicate its process automation software using their own AI tools. It isn't a coincidence that many software and software-as-a-service (SaaS) stocks have taken a beating lately.
NYSE: NOW
Key Data Points
Furthermore, ServiceNow's recent acquisition spree has cast a pall over the company. Fresh on the heels of its $2.85 billion acquisition of AI agent specialist Moveworks, ServiceNow announced plans to acquire cybersecurity start-up Armis for $7.75 billion. While these acquisitions beef up ServiceNow's AI pedigree, they also bring the risks that come with any buyout -- not achieving expected synergies, culture clashes, and the loss of key talent that may not stick around after the deal closes.
ServiceNow is guiding for full-year subscription revenue growth of 21%. However, after adjusting for currency and excluding acquisitions, that works out to organic growth of 19%, below the key psychological threshold of 20% investors look for, according to KeyBanc analyst Jackson Ader.
Despite its recent fall from grace, ServiceNow still trades for more than 33 times earnings. Given the uncertainty, investors are adopting a wait-and-see attitude.
