Why ServiceNow Stock Was Sliding Today

Shares of ServiceNow (NYSE: NOW) were sliding today in response to news that a partner firm, Carahsoft Technology, was raided by the FBI yesterday in Virginia.

While the raid on the IT distributor doesn't directly implicate ServiceNow, analysts seem to fear that the investigation could put a dent in ServiceNow's business.

As of 11:11 a.m. ET, the stock was down 2.9%.

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How ServiceNow is impacted

According to Piper Sandler, ServiceNow has about the greatest exposure of any software company, and the move could disrupt some of ServiceNow's deals with the federal government.

It also said that more than 40% of ServiceNow's reported federal contracts come through Carahsoft. SAP and Okta were also impacted by the investigation.

Investigators believe that Carahsoft and its partners may have schemed to overcharge government agencies. ServiceNow has not addressed that investigation, though the potential impact on the company still seems unclear.

Earlier this year, SAP agreed to pay $222 million in fines over bribery schemes in seven countries.

What's next for ServiceNow

ServiceNow is one of the largest cloud software companies, and even if the Carahsoft investigation results in a fine, it's unlikely to derail its business in a meaningful way. Nonetheless, it's worth keeping an eye on the issue.

In a difficult environment for the software industry, ServiceNow has continued to deliver steady growth with revenue up 22% to $2.63 billion in the second quarter, and 31% growth in remaining performance obligations (RPO), up to $18.6 billion, showing its backlog remains strong as well. Additionally, operating margins continue to ramp up.

Unless the investigation is part of a larger problem, ServiceNow still looks well positioned for long-term growth.

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Jeremy Bowman has positions in Okta. The Motley Fool has positions in and recommends Okta and ServiceNow. The Motley Fool has a disclosure policy.