ServiceNow’s stock has exceeded CEO Bill McDermott’s prediction of $800 a share, closing at about $829 on July 25. Despite this significant increase, there are reasons to believe the stock could continue rising. These reasons include strong demand for Now Assist, a larger than expected contract backlog, and the company’s ability to monetize generative AI effectively. While the sudden departure of CEO CJ Desai is concerning, his acting successor could help maintain the market momentum.
In the second quarter report, ServiceNow beat expectations with a revenue of $2.627 billion, adjusted earnings per share of $3.16, and a subscription revenue of $2.54 billion. The company’s current remaining performance obligations were $8.78 billion, surpassing analysts’ projections. ServiceNow’s forecast for subscription revenue for Q2 2024 and CRPO growth forecast for Q3 2024 also indicate a positive outlook for the company.
ServiceNow’s generative AI strategy is proving to be successful, with gains in productivity and improved customer and employee experiences. The company’s generative AI products, including Now Assist, have been beneficial for customers in various ways, such as improving employee self-service, making salespeople more productive, enhancing customer service, and boosting software development productivity. Customers value Now Assist, leading to revenue uplift and improved customer service.
Analysts are optimistic about how generative AI could drive ServiceNow’s revenue further. Factors such as an increase in Now Assist’s revenue impact, its contract value doubling in the second quarter, and the company’s standout AI positioning contribute to this positive outlook. ServiceNow’s commitment to putting AI to work for people aligns with the growing importance of embedded capabilities in the workforce.
Despite positive performance, ServiceNow faced challenges with the departure of President and COO CJ Desai due to policy violations concerning the sales process for a government contract. The company is taking corrective actions and tightening its hiring policies to prevent similar incidents in the future. Chris Bedi has been appointed as interim chief product officer in response to Desai’s resignation.
While much of the upside in ServiceNow stock is already reflected in the price, analysts remain optimistic about the company’s prospects. With the potential for continued growth driven by generative AI, analysts may need to raise their price targets in the future. ServiceNow’s strong financial performance, successful generative AI strategy, and commitment to customer satisfaction position the company well for future success.
