Guggenheim analysts have downgraded ServiceNow (NYSE:) to Promote from Impartial, and set a value 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 word that the inventory is presently buying and selling at a excessive valuation of 15x EV/NTM possible recurring income, which presents important draw back threat.
“NOW seems to be expecting an uptick in GenAI business in the 2H, but our field work indicates this is not likely until 2025, if ever,” analysts mentioned in a word.
“Partner checks were generally positive for 2Q, but not as positive as they usually are. Several partners expressed concern about 2H24, especially since GenAI monetization is not happening en masse and is not likely to materialize this year, as management has suggested it would.”
Though the corporate’s US Federal enterprise for ServiceNow stays strong, it’s unlikely to offer the identical increase 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 Schooling (SLED) markets and international authorities efforts aren’t anticipated to compensate for this hole.
Primarily based 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 consider there may be “a material risk that NOW will have to lower top-line subscription guidance for 2024.”
