ServiceNow Shares Drop 3.7% After-Hours Despite Q3 Beat

ServiceNow (NOW) reported stronger-than-expected Q3 results, topping both earnings and revenue estimates driven by the ongoing acceleration in the digital transformation market.

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Despite the beat, shares of the software firm offering enterprise cloud-computing solutions to organizations across industries globally dropped 3.7% in Wednesday’s after-market trading hours.

In Q3, adjusted earnings of $1.55 per share beat analysts’ expectations of $1.38 per share. The company reported earnings of $1.21 per share in the prior-year period.

In addition, revenues jumped 31% year-over-year to $1.51 billion and exceeded consensus estimates of $1.47 billion. The increase in revenues reflected a surge in subscription revenues, which increased 31% year-over-year to $1.43 billion. (See ServiceNow stock charts on TipRanks)

Furthermore, professional services and other revenues jumped 39% to $85 million. The total number of customers with an annual contract value of more than $1 million increased 25% to 1,266.

For the fourth quarter, the company forecast subscription revenues to grow 28% year-over-year and range from $1.515 – $1.520 billion. Furthermore, ServiceNow expects subscription revenues to grow 30% year-over-year to between $5.565 billion and $5.575 billion for full-year 2021.

CEO Bill McDermott commented, “Leaders recognize their technology architecture is their business architecture. As this digital transformation market is accelerating, ServiceNow’s platform is creating unmatched customer and employee experiences.”

He further added, “We remain hungry and humble in our pursuit of becoming the defining enterprise software company of the 21st century. Our focus is on value creation for our stakeholders by making the world work better for everyone.”

Following the results announcement, JMP Securities analyst Patrick Walravens reiterated a Buy rating on the stock with the price target of $705 (6.1% upside potential).

Overall, the stock has a Strong Buy consensus based on 22 Buys and 1 Hold. The average ServiceNow price target of $701.09 implies a 5.5% upside potential. Shares of the company have gained nearly 37% over the past year.

According to TipRanks’ Smart Score rating system, ServiceNow scores a “Perfect 10,” suggesting that the stock is likely to outperform market averages.