A month has gone by since the last earnings report for ServiceNow (NOW Quick QuoteNOW - Free Report) . Shares have lost about 9.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is ServiceNow due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

ServiceNow Q4 Earnings Beat Estimates, Revenues Up Y/Y

ServiceNow reported fourth-quarter 2024 adjusted earnings of $3.67 per share, which beat the Zacks Consensus Estimate by 2.51% and increased 18% year over year.

Revenues of $2.957 billion beat the consensus mark by 0.13% and increased 21.3% year over year. At constant currency (cc), revenues increased 21% year over year to $2.95 billion.

NOW’s 2025 subscription revenue growth is now expected between 19.5% and 20% over 2024. ServiceNow reported 2024 subscription revenues of $10.639 billion, up 22.5% over 2023.

NOW’s Subscription Revenues Up Y/Y, Margin Expands

Subscription revenues improved 21.2% year over year, on a reported basis, to $2.866 billion. On a cc basis, revenues increased 21% to $2.859 billion.

Professional services and other revenues increased 26% year over year on a reported and 26.5% on a cc basis to $91 million.

At the end of the fourth quarter, the current remaining performance obligations (cRPO) were $10.49 billion, up 22% year over year on a cc basis. Remaining performance obligations, on a cc basis, rose 26% year over year to $22.7 billion. 

In terms of margins, the fourth-quarter non-GAAP gross margin was 82.6%, up 60 bps on a year-over-year basis. Subscription gross margin was 84.9%, up 60 bps year over year. Professional services and other gross margins were 6.1% compared with 9.7% reported in the year-ago quarter.

As a percentage of revenues, operating expenses decreased 170 bps on a year-over-year basis to 66%.

ServiceNow’s non-GAAP operating margin expanded 10 bps on a year-over-year basis to 29.5%.

ServiceNow had 2,109 total customers with more than $1 million in annual contract value (ACV) at the end of the reported quarter, which represents 14% year-over-year growth in customers. 

In the reported quarter, NOW had 19 deals greater than $5 million in net new ACV. It closed 170 deals greater than $1 million net new ACV. The number of customers contributing more than $20 million or more grew nearly 35% year over year. 

ServiceNow’s Pro Plus AI grew 150% sequentially. The number of customers who bought two or more of NOW’s GenAI capabilities doubled quarter-over-quarter.

In terms of products, 76 of NOW’s tech workflow deals were more than $1 million, including one over 15 million. ITSM, ITOM and ITAM and Security and Risk were all in at least 15 of the top 20 deals. IT asset management was in all of the company’s top 20. Employee and creative workflows won at least 17 deals, each more than $1 million.

Industry-wise, manufacturing and public sector grew 50% and 40% year over year, respectively. ServiceNow’s renewal rate was a strong 98%.

Solid Liquidity Aids NOW’s Prospects

As of Dec. 31, 2024, NOW had cash and cash equivalents and short-term investments of $5.762 billion compared with $5.295 billion as of Sept. 30, 2024. Long-term investments were $4.111 billion.

During the reported quarter, cash from operations was $1.635 billion compared with $671 million in the previous quarter.

ServiceNow generated a free cash flow of $1.40 billion in the reported quarter, up from $471 million reported in the prior quarter.

NOW’s Subscription Revenue Growth Outlook Weak

For 2025, NOW expects subscription revenues to be $12.635-$12.675 billion, which suggests a rise of 18.5% to 19% from 2024 on a GAAP basis and 19.5-20% on a non-GAAP basis. 

ServiceNow expects the non-GAAP subscription gross margin to be 83.5% and the non-GAAP operating margin to be 30.5%. Moreover, the free cash flow margin is expected to be 32%.

For the first quarter of 2025, subscription revenues are projected between $2.995 billion and $3 billion, suggesting an improvement in the range of 18.5-19% year over year on a GAAP basis. At cc, subscription revenues are expected to grow in the 19.5-20% range.

ServiceNow expects the non-GAAP operating margin to be 30% in the current quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, ServiceNow has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, ServiceNow has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.