Wall Street darling ServiceNow Inc. hit a bump in the road today as its second-quarter subscription revenue and outlook for the next quarter fell short of analysts’ expectations.

The company did at least beat estimates on profit and total revenue. The company, which sells information technology service management software, posted earnings before certain costs such as stock compensation of 71 cents per share, up 49% from a year ago. Revenue for the period came to $833.9 million, up 32%.

Wall Street was expecting ServiceNow to report earnings of just 63 cents per share on revenue of $832.4 million.

Those initial results were fairly impressive, but the company promptly fell flat on its face when it revealed its quarterly subscription revenue came up short, rising 33%, to $781 million. Analysts were hoping for better, having forecast subscription revenue of $782.7 million for the quarter.

Subscription revenue is considered important because it provides a more reliable stream of income than traditional perpetual license business model.

And there was even more bad news to come as ServiceNow projected third-quarter subscription revenue of $832.5 million at its midpoint of guidance. Once again, that was below expectations, as Wall Street was targeting $836 million.

Investors were clearly spooked, as ServiceNow’s share price fell 3.6% in after-hours trading.

The stock drop comes as a surprise to some because ServiceNow has over the past year outperformed most other tech companies, growing more than 50% in the last 12 months. And in the past five years, its stock price has increased almost five times.

“It can be hard for vendors with high evaluations to keep investors happy,” said Holger Mueller, principal analyst and vice president of Constellation Research Inc. “Today’s example of this is ServiceNow, which beat revenue and earnings estimates and shows a strong core business with good customer growth, and yet it still sees its stock falling. The reason being a mere adjustment of $4 million in its expected revenue guidance. This is a good reminder that the investor nervous system is more than hyper sensitive.”

However, another analyst wasn’t surprised at the stock decline. “In our view, the 4% after-hours sell-off is justified,” Mizuho Bank tech analyst Gregg Moskowitz wrote in a note to clients. “However, NOW remains extremely well positioned, and we continue to expect good billings and revenue growth for the foreseeable future, aided by high demand for workflow automation, strong cross-sell, and entry into new markets.”

ServiceNow did at least have better news regarding its software billings, which rose 31% from the year-ago period, to $871 million, beating estimates of $855 million. The company also closed on 39 new transactions worth more than $1 million in annual contract value in the quarter. It now counts more than 766 total customers in that category, representing 33% growth from a year ago.

“We delivered another strong quarter, continuing our focus on driving customer success and enabling digital transformation as a strategic partner to the world’s largest enterprises,” John Donahoe (pictured), ServiceNow’s president and chief executive officer, said in a statement.

ServiceNow has benefited in recent years from enterprises shifting more of their computing workloads to cloud-based infrastructure, which has driven demand for its service software. That shift has also enabled the company to expand beyond its original scope, to focus on additional products such as customer service management, human resource management and security.

In the quarter just gone, ServiceNow boosted its profile somewhat by striking partnerships with key cloud infrastructure firms, including Microsoft Corp. and Google LLC. The company also found time to make an acquisition, buying mobile app analytics startup Appsee Ltd.

Photo: JD Lasica/Flickr