Shares in ServiceNow retreated after its June-quarter missed views amid worries corporate spending on software will slow if a recession hits the U.S. economy. Subscription revenue guidance for NOW stock came in below expectations.
Santa Clara, Calif-based ServiceNow reported second-quarter earnings after the market close on Wednesday. ServiceNow stock fell 6.4% to near 420 in early trading on the stock market today.
Heading into the ServiceNow earnings report, the company's chief executive, Bill McDermott, had signaled that its sales cycle in Europe was lengthening. And, he indicated some deals were being postponed.
ServiceNow earnings climbed 15% to $1.63 per share on an adjusted basis. Revenue rose 24% to $1.752 billion, the enterprise software maker said. Analysts expected ServiceNow to report earnings of $1.55 a share on revenue of $1.76 billion for the quarter that ended June 30.
A year earlier, ServiceNow earned $1.42 a share on sales of $1.41 billion.
ServiceNow Stock Down 32% This Year
In addition, ServiceNow said subscription revenue for the period rose 25% to $1.66 billion, missing estimates of $1.67 billion.
"Subscription revenue guidance for Q3 was slightly below vs. consensus and 2022 guidance moved lower, as management noted a challenging macro environment as well as additional (currency exchange rate) pressures," said RBC Capital Markets analyst Matthew Hedberg in a report.
Heading into the earnings report, ServiceNow stock had declined 32% in 2022.
The enterprise software maker said first-quarter current remaining performance obligations, or CRPO bookings, rose 21% to $5.75 billion. CRPO bookings are an aggregate of deferred revenue and order backlog.
ServiceNow said it expects September-quarter subscription revenue in a range of $1.75 billion to $1.755 billion. ServiceNow stock analysts predicted subscription revenue of $1.787 billion.
Headwinds For ServiceNow
In the earnings release, ServiceNow stated, "Additionally, ServiceNow has a larger‑than‑average customer cohort renewing in Q4 2022. As a result, Q3 2022 will experience approximately 2 points of headwinds to CRPO growth as the contractual obligations wind down."
The company added: "We expect that cohort to renew in Q4 2022, at which time those headwinds will subside and we expect CRPO growth to re‑accelerate quarter over quarter."
At Cowen, analyst Derrick Wood said in a report: "The second quarter came in as we expected, though we think the Q3 CRPO guide was slightly below buy-side expectations, causing shares to trade down. That said, management's message was that it has de-risked second-half expectations and left added cushion, assuming end of June conditions persist through the second half."
The company's software tracks and manages services provided by information-technology departments. Its self-service tech portal enables company employees to access administrative and workflow tools.
Further, ServiceNow has expanded from its core business into software for human resources, customer service management and security.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
