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NOW Raises '25 Subscription Sales Outlook: Buy or Hold the Stock?

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NOW Raises '25 Subscription Sales Outlook: Buy or Hold the Stock?

ServiceNow (NOW) raised its 2025 subscription revenue outlook to $12.835-$12.845 billion, reflecting approximately 20% year-over-year growth, driven by strong workflow demand and expanded partnerships, including with NVIDIA for AI capabilities. Despite this positive guidance, NOW shares have underperformed peers, falling 17.9% over the past year, attributed to macroeconomic headwinds, government budget tightening, and a stretched valuation with a forward price/sales of 11.7x. While 2025 and 2026 earnings estimates show positive trends, these challenges contribute to a Zacks 'Hold' rating, suggesting caution for investors.

Analysis

ServiceNow (NOW) reported robust subscription revenue growth of 21% over the trailing nine-month period in 2025 and subsequently raised its full-year 2025 subscription revenue guidance to $12.835-$12.845 billion, projecting approximately 20% year-over-year growth. This positive outlook is supported by expanding workflow adoption, evidenced by 103 transactions exceeding $1 million in Q3 annual contract value (ACV) and a more than 20% increase in customers contributing over $50 million. Strategic partnerships, particularly with NVIDIA for advanced AI workflow capabilities like Apriel 2.0, are further enhancing its product portfolio and market penetration. Despite these strong operational metrics and an improved revenue outlook, NOW shares have significantly underperformed, plunging 17.9% over the past year. This lags the broader Zacks Computer and Technology sector and key competitors such as Oracle (+24.6%) and SAP (+8.5%). The underperformance is primarily attributed to challenging macroeconomic trends, including uncertainty from the ongoing government shutdown, and tightening budgets from U.S. federal agencies, which are expected to impact Q4 2025 subscription revenues. The stock currently exhibits a stretched valuation, holding a Value Score of F and trading at a forward 12-month price/sales multiple of 11.7X, substantially higher than the sector average of 6.91X and peer multiples. Technically, NOW shares are trading below both their 50-day and 200-day moving averages, indicating a bearish trend. While 2025 and 2026 earnings estimates show positive revisions, the immediate Q4 2025 earnings estimate saw a slight downward adjustment.