ServiceNow NOW has strengthened its portfolio with the launch of the Yokohama platform last week. The update brings new AI agents across varied domains, including CRM, HR and IT, delivering enhanced productivity as well as smoother and smarter functioning of workflows. NOW announced the expansion of its Knowledge Graph with advancements to its Common Service Data Model (CSDM), which offers a standardized framework for managing IT and business services. CSDM helps enterprises implement and scale technology at a rapid pace in a safe environment.

The Yokohama platform release offers ServiceNow Studio, which provides a unified AI-powered workspace for rapid application development for no-code, low-code and pro-code developers. Generative AI (Gen AI)-powered skills like RPA bot generation, app summarization and  Automated Test Framework (ATF) generation are notable additions. While RPA bot generation allows companies to use natural language to create bots, app summarization adds AI???generated summaries to app descriptions to check for duplicate apps and evaluate for deployment. ATF simplifies application testing.

The Yokohama platform update is expected to help ServiceNow continue winning clients. Exiting fourth-quarter 2024, NOW had 2,109 total customers with more than $1 million in annual contract value (ACV), which represents 14% year-over-year growth in customers. NOW had 19 deals greater than $5 million in net new ACV and 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. While Pro Plus AI grew 150% sequentially, the number of customers who bought two or more of NOW’s GenAI capabilities doubled quarter over quarter.

However, a strong clientele has failed to ignite a rally in ServiceNow shares, which have plunged 20.4% year to date, underperforming both the Zacks Computer & Technology sector and the Zacks Computers – IT Services industry’s decline of 8.1% and 11.3%, respectively.

NOW Stock’s Performance

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Will the Yokohama release help ServiceNow stock recover in the near term? Let’s dig deep to find out.

NOW’s Subscription Growth to Hurt From Unfavorable Forex

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% to 20% on a non-GAAP basis. An unfavorable forex impact of roughly $175 million and back-end loaded federal business is expected to hurt the growth rate. ServiceNow’s strategy to accelerate the adoption of its Agentic AI by foregoing immediate revenues is expected to affect the subscription revenue growth rate in 2025.

For the first quarter of 2025, subscription revenues are projected between $2.995 billion and $3 billion, suggesting an improvement 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. Unfavorable forex is expected to hurt revenues by $40 million.

Sequentially, these figures imply modest revenue growth. Subscription revenues improved 21.2% year over year, on a reported basis, to $2.866 billion in the fourth quarter of 2024. On a cc basis, revenues increased 21% to $2.859 billion.

NOW’s Earnings Estimate Revision Steady

The Zacks Consensus Estimate for 2025 earnings is pegged at $16.24 per share, unchanged over the past 30 days, indicating a 16.67% increase over 2024’s reported figure.

NOW’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 7.02%.
 

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

The consensus mark for 2025 revenues is pegged at $13.04 billion, suggesting growth of 18.69% over 2024’s reported figure.

Can NOW’s Strong Portfolio & Partner Base Drive Prospect?

ServiceNow is extensively leveraging AI and machine learning technologies to boost the potency of its solutions. A rich partner base that includes the likes of Amazon, Microsoft and NVIDIA NVDA is noteworthy.

NVIDIA and NOW collaborated to launch AI agents for the telecom industry. The AI agents were built with NVIDIA AI Enterprise software and the AI platform NVIDIA DGX Cloud. DXC Technology DXC and ServiceNow have collaborated to introduce DXC Assure BPM (Business Process Management), which combines DXC’s insurance expertise and scale with ServiceNow’s single platform and data model.

ServiceNow has been actively pursuing acquisitions this year. In late February, NOW announced the acquisition of the Quality 360 solution from Advania to enhance its strength in the manufacturing industry. Last week, ServiceNow announced its plan to acquire Moveworks, which will boost NOW’s agentic AI offerings.

How Should You Approach ServiceNow Stock?

ServiceNow stock is overvalued, as suggested by the Value Score of F.

In terms of the forward 12-month Price/Sales, NOW is trading at 12.83X, higher than the sector’s 5.8X.

Price/Sales Ratio (F12M)

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Technically, ServiceNow stock is displaying a bearish trend as it is trading below both the 200-day and the 50-day moving averages.

NOW Trades Below 50-day & 200-day SMA

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ServiceNow’s robust GenAI portfolio and strong partner base are expected to drive its clientele, boosting subscription revenues. However, unfavorable forex amid a challenging macroeconomic environment is a concern. NOW stock’s stretched valuation makes the stock unattractive for value investors.

ServiceNow currently has a Zacks Rank #3 (Hold), which implies that investors should wait for a more favorable time to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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