ServiceNow Falls on Margin Outlook

This article first appeared on GuruFocus.

ServiceNow (NOW, Financials) shares plummeted as it forecast a poorer margin than expected, despite robust first-quarter sales growth.Analysts projected $0.97 adjusted profits per share from the corporate software company. Sales rose 22% year over year to $3.77 billion, exceeding analysts’ expectations. The remaining performance commitments grew 25% to $27.7 billion, indicating robust demand.Investors wanted to profit. ServiceNow estimated that full-year subscription gross margins will be 81.5%, down from 82.1%. The company claimed recent purchases caused the disparity, which should narrow by 2027.Even if sales are expanding, investors are anxious about margins, as shares fell 14% after-hours. The Middle East’s ongoing crisis delayed agreements, hurting subscription revenue growth, the company claimed.Despite short-term challenges, ServiceNow raised its second-quarter and full-year subscription revenue forecasts. This is because its main business and AI-driven products are successful. Investors will watch margins as integration costs drop and acquisition growth accelerates.