Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of ServiceNow (NOW 1.59%) are down nearly 12% today after beating expectations on the top and bottom lines, and after raising its full-year revenue guidance to a level where even its low end is better than analyst expectations. Confused? You're not the only one.
So what: ServiceNow's net loss of $0.06 per share was $0.01 worse than its year-ago quarterly result, but $0.04 better than what analysts had expected. Third-quarter revenue, which is up 88% from the year-ago quarter to $64.4 million, also came in well ahead of the consensus estimate of $62.1 million. ServiceNow's guidance for the fourth quarter expects revenue from $69 million to $71 million and a loss of $0.05 to $0.06 in EPS, both of which are better than expectations of $69.3 million in revenue and an $0.08 loss.
Full-year revenue guidance, at $237.5 million to $239.5 million, now comes in ahead of the consensus estimate of $235.3 million.
Now what: My best guess as to the cause of this drop is that ServiceNow has provided no guidance for when it will become profitable, but that seems like an incomplete assessment. Since ServiceNow is such a recent entrant to the public markets, and has posted impressive gains since its IPO, that today's drop may just be profit-taking by impatient investors. However, without any indicator of future profitability, and with a price-to-operating-cash-flow ratio of over 170, those investors' decisions to sell may very well be justified.
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