Guggenheim analysts have downgraded ServiceNow (NYSE:) to Promote from Impartial, and set a worth goal of $640.
Whereas the funding agency expects NOW’s 2Q24 outcomes to be passable, they see dangers within the second half of 2024, significantly regarding consensus Subscription expectations.
Analysts additionally notice that the inventory is at present buying and selling at a excessive valuation of 15x EV/NTM probably recurring income, which presents important draw back danger.
“NOW appears to be anticipating an uptick in GenAI enterprise within the 2H, however our discipline work signifies this isn’t probably till 2025, if ever,” analysts mentioned in a notice.
“Associate checks had been usually optimistic for 2Q, however not as optimistic as they normally are. A number of companions expressed concern about 2H24, particularly since GenAI monetization shouldn’t be occurring en masse and isn’t prone to materialize this yr, as administration has prompt it could.”
Though the corporate’s US Federal enterprise for ServiceNow stays sturdy, it’s unlikely to offer the identical enhance in New Annual Contract Worth (ACV) seen from the second half of 2022 by means of the primary half of 2023.
Furthermore, the much less mature State, Native, and Training (SLED) markets and international authorities efforts should not anticipated to compensate for this hole.
Based mostly on their fieldwork and evaluation of the IT spending setting, together with the anticipated want for elevated enterprise momentum within the second half of 2024, analysts imagine there may be “a cloth danger that NOW should decrease top-line subscription steering for 2024.”
