ServiceNow ($NOW) Pre-earnings Analysis
It’s been a tough 12 months for ServiceNow investors as they see their investment get cut in half. The sell-off that engulfed the software industry swept names like ServiceNow, Intuit, Palantir, Salesforce…etc. lower, and for many SaaS stocks, there hasn’t been a clear “reversal” signal (apart from cybersecurity, which has been doing well).
How the Software Sector can Bounce Back
Earnings season is the most obvious and prominent catalyst that can bring eyes to software stocks. Many names are reporting in the coming weeks, some of the most notable names being: IBM, ServiceNow, F5…and MANY more (Look at $IGV for an ETF that covers and gives broad exposure to the software industry).
Why ServiceNow Matters
ServiceNow sits at the center of how large companies manage IT operations, customer service, security, human resources…etc. Their business is “sticky” as switching costs can be high, and subscription growth does support a bullish case.
The market still doesn’t seem impressed, which is the case for many of these software stocks. Investors are more interested in buying companies involved in the AI buildout, which is why money is still chasing names like Micron, Nvidia, AMD, ASML…etc. while SaaS stocks get left behind. But a day will come where software gets too cheap to ignore, and AI gets too expensive to buy, that day will reward patient investors who focused on value instead of hype.
Now the question…is ServiceNow primed for reversal?
Now clear indication of a reversal yet, but the bleeding seems to have slowed a bit. Whether or not they reverse (and hold the reversal), they need to execute on the initiatives they promised investors + they need confidence to comeback to the software sector (which will only happen through strong earnings over the coming quarters). The company’s strategic initiatives include Now Assist (this is their attempt to push deeply into enterprise, where the big reoccurring money is), this adds AI directly into IT, customer service, HR, security, and other workplace systems.
The bigger opportunity is its AI agents (which is a big buzzword). ServiceNow is also building an AI Control Tower to help companies monitor and control all the different AI agents they use.
The company has also recently made strategic acquisitions, the favorite for us is their recent one into cybersecurity through Armis, which is a company that can identify the device or security risk, and ServiceNow can create the workflow needed to fix it (they’re double dipping). ServiceNow also acquired Veza, strengthening its ability to control what employees and AI agents are allowed to access. Overall, that makes them more valuable.
Financial Overview
Revenue growth briefly slowed toward the high teens early 2025, but it has since settled back around 20%-22% over the last four reported quarters. The profit picture is more mixed. ServiceNow remains profitable, but GAAP net income increased just 2% YoY last quarter, slowing sharply from the stronger growth rates it posted during parts of last year. That is something investors will want to see improve. As you can imagine, when profit growth slows, so does the company’s ability to build cash, fund acquisitions, repurchase shares, and potentially introduce a dividend down the road. ServiceNow is still financially healthy, but investors will want to see its bottom line growth catch back up with revenue.
Option Chain Analysis
ServiceNow’s option chain expiring on August 21st 2026 currently reflects an implied volatility reading of 77.7%, which calculates to about a (+/-) $18.75 move from the underlying stock following the report. Whether that’s bullish or bearish depends on the outcome of the earnings call and performance.
The current implied volatility is at its higher point on $NOW compared to the past twenty days. Imagine 1 was the average / neutral point of how “expensive” IV is right now…right now, it’s at 1.39…so you’re paying a HIGH premium for options ahead of earnings. This also means the market is pricing in a BIG move…considering how long $NOW has range traded between 80-120, the move could either move them above or below that range depending on the earnings results.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of capital. Always conduct your own research or consult with a licensed financial advisor before making investment decisions.
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