ServiceNow Shares Slide Despite Q1 Beat as Growth Deceleration Spooks Investors

ServiceNow (NYSE: NOW) saw its shares decline following the release of its first-quarter financial results, highlighting a growing market intolerance for decelerating growth within the software-as-a-service (SaaS) sector. Despite beating consensus estimates, the company faced pressure as key forward-looking metrics showed a cooling trend. For the first quarter, ServiceNow reported revenue of $3.77 billion, a 22% year-over-year increase, surpassing the $3.74 billion expected by analysts. Adjusted earnings per share reached $0.97, slightly above the $0.96 consensus. Subscription revenue grew 22% to $3.67 billion, though constant currency growth dipped slightly to 19% from 19.5% in the previous quarter. The primary driver of the sell-off was the deceleration in remaining performance obligations (RPO), which rose 23.5% to $27.3 billion, down from 26.5% in Q4. Similarly, current RPO (cRPO) grew 21% to $12.45 billion, compared to 25% growth in the prior quarter. The company also noted that a few large on-premise deals in the Middle East failed to close due to regional conflict. Looking ahead, management raised full-year subscription revenue guidance to a range of $15.735 billion to $15.775 billion, representing growth of 22% to 22.5%. Additionally, the recent acquisition of cybersecurity firm Armis is expected to contribute approximately 125 basis points to growth. While the market has reacted sharply, the company's valuation now sits at a forward price-to-sales multiple of 5.5 and a forward P/E of 20.