As the Q1 2026 earnings season approaches, Wall Street investment bank Stifel has significantly lowered its price target for software giant ServiceNow (NOW.US), reducing it from $180 to $135. The adjustment is primarily based on the analyst's observation of unexpectedly weak software spending at the U.S. federal government level, directly impacting a key revenue stream for ServiceNow. Despite the substantial cut, Stifel maintained its "Buy" rating, suggesting the current challenges stem more from a shifting macroeconomic environment than a loss of the company's core competitiveness.
Historically, U.S. federal government business was a strong growth engine for ServiceNow, with the segment experiencing explosive growth of approximately 30% year-over-year in the same period last year. However, starting in 2026, the newly established Department of Government Efficiency (DOGE) began implementing strict spending cuts and contract restructuring plans aimed at streamlining operational expenditures across agencies. This policy shift has led to the postponement or cancellation of numerous planned software procurement projects, directly impacting ServiceNow's Q1 performance.
Stifel's research indicates this "rapid cooling of federal business" is not merely seasonal but a structurally driven decline prompted by policy changes. Stifel analyst Brad Reback's team noted in the report, "Based on the data we analyzed (Department of Defense data, which lags by several months, was excluded), federal business has declined significantly year-over-year against a strong prior-year comparable period (up 30% YoY). This performance may be worse than management's initial guidance."
Regarding specific financial expectations, Stifel indicated that ServiceNow's current remaining performance obligation (cRPO) growth for Q1 might only slightly exceed the company's official guidance by about 50 basis points (compared to an organic growth buffer of approximately 100 basis points last quarter). This corresponds to a constant-currency growth rate of about 20.5% year-over-year (below the 20% guidance). "Considering management's guidance includes a non-organic contribution of approximately 100 basis points from Moveworks, we estimate organic cRPO growth is around 19.5%," the report added.
Notably, a contract related to a $15 million "delayed resignation plan" was canceled (de-obligation). While this specific write-down may have been partially anticipated by management, the cautious spending attitude it reflects among government clients has unsettled the market. Analysis suggests that as the federal government reassesses various technical service agreements, ServiceNow's short-term order conversion efficiency will face significant challenges.
ServiceNow is scheduled to report its fiscal first-quarter 2026 (ended March 31, 2026) financial results after the U.S. market closes on Wednesday, April 22. The market consensus expects adjusted earnings per share of $0.97, GAAP EPS of $0.53, and revenue of $3.75 billion. The company's previous Q1 revenue guidance was $3.65 billion to $3.655 billion.
Despite ServiceNow achieving over 20% revenue growth for three consecutive quarters, its stock price remains under pressure. The stock has fallen approximately 43% over the past six months, hovering near 52-week lows, reflecting widespread investor concern about slowing growth in the SaaS (Software-as-a-Service) sector. Besides Stifel, other major institutions like Wells Fargo have recently lowered their price targets, consistently pointing to tightening government budgets as an unavoidable near-term risk.
Nevertheless, the market is looking ahead to the official earnings report on April 22, hoping management will provide clearer guidance on breakthroughs in the commercialization of new AI products (such as Now Assist) and whether federal business can bottom out and rebound in the second quarter.