Shares of ServiceNow (NYSE: NOW) were moving lower today after the software-as-a-service company beat estimates in its first-quarter earnings report but offered revenue guidance for the full year that was slightly below analyst expectations. Additionally, there may be concerns about its valuation getting stretched after the stock had run up in the last several months, so it was easy for a slight miss to prompt a sell-off. As a result, the stock was down 5.1% as of 12:55 p.m. ET.
ServiceNow posts a solid first quarter
Revenue in the quarter rose 24% to $2.6 billion, which essentially matched estimates at $2.59 billion. Subscription revenue rose 25% to $2.5 billion, and current remaining performance obligations, a reflection of the work that's booked for the next year, were up 21% to $8.45 billion, showing demand remains solid.
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ServiceNow also booked eight transactions of more than $5 million in annual contract value, doubling from the quarter a year ago. This shows it was attracting more large contracts and large customers.
Operating margin was up solidly in the quarter as ServiceNow gained leverage in every line item on its income statement. It reported an adjusted operating margin of 30%, up from 26% in the quarter a year ago. Meanwhile, adjusted earnings per share jumped from $2.37 to $3.41, which beat estimates of $3.14.
CEO Bill McDermott said the company was off to a fast start in 2024, adding, "As leaders seek significant productivity improvements, ServiceNow has first-mover advantages with years of investment in AI technology and talent."
Why ServiceNow stock fell
The company's guidance for the second quarter was decent, calling for subscription revenue growth of 21.5%-22% to $2.525-$2.53 billion, which represented a sequential deceleration from the first quarter and was better than the consensus at $2.45 billion. However, for the full year, the company called for $10.56 billion-$10.57 billion in subscription revenue, up 21.5%-22%, but below the consensus of $10.59 billion
In an environment where investors are beginning to question tech stock valuations, that seemed to be enough to prompt the sell-off. Still, ServiceNow seems well-positioned for long-term growth, and investors shouldn't be thrown off by today's sell-off.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ServiceNow. The Motley Fool has a disclosure policy.
