ServiceNow Earnings Preview: What to Watch When NOW Reports After the Bell
Quick Read
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ServiceNow (NOW) shares dropped 33% from $211 to $132 despite delivering 22% revenue growth and beating Q3 estimates by 13%.
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ServiceNow’s new multi-year OpenAI partnership must translate into measurable customer adoption and incremental revenue by H2 2026.
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Analysts remain bullish with 42 of 47 buy ratings and $206 average target. The stock trades at $132 with 33x forward earnings.
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What Happens Next: The Path Forward
ServiceNow faces a critical test in after-hours trading as investors digest guidance that shows continued deceleration. The company projects 19.5-20% constant-currency subscription growth for 2026 – down from 21.8% in Q3 2025 and well below the 22%+ reacceleration bulls were hoping for.
The stock’s 3% after-hours decline reflects disappointment that the OpenAI partnership won’t materially impact revenue until H2 2026. With the conference call underway, management must address whether this growth slowdown is temporary or structural.
Key questions remain: Can Pro Plus tier upgrades and AI Control Tower adoption offset core business maturation? Will enterprise IT budget pressures persist through 2026? The stock trades at 79x trailing P/E despite sub-20% growth rates.
Analysts will provide updated assessments following the earnings call and guidance announcement.
New Guidance Outlook
2026 GUIDANCE:
| Metric | Q1 2026 | Full Year 2026 |
|---|---|---|
| Subscription Revenue | $3.65B (+18.5-19% cc) | $15.53-15.57B (+19.5-20% cc) |
| Operating Margin | 31.5% | 32% |
| FCF Margin | Not guided | 36% |
| cRPO Growth | 22.5% (20% cc) | Not guided |
- Q1 includes 150bps headwind from self-hosted → hosted shift
- Moveworks acquisition adds ~100bps to growth
- Currency tailwinds of 100-250bps built into guidance
The Good and the Bad For NOW
The Positives on the quarter:
- Beat on What Matters
- EPS crushed by 5.7%
- Q4 free cash flow margin of 57% (exceptional)
- cRPO growth accelerated to 25%
- Profitability Expanding
- Operating margin improved 150bps
- Subscription gross margin: 82.5%
- Generating $14.7B operating cash flow for year
- Customer Expansion Strong
- 603 customers with $5M+ ACV (up from 551)
- Average ACV for $5M+ customers: $14.7M
- 98% renewal rate (rock solid)
- AI Momentum Building
- OpenAI partnership announced
- GenAI expected to drive incremental revenue in H2 2026
- Pro Plus tier driving expansion
And some concerns that are leaving the stock lower:
- Growth Decelerating
- Q4 subscription growth: 19.5% cc (down from 20-21% earlier quarters)
- 2026 guidance: 19.5-20% cc growth
- Not re-accelerating despite OpenAI hype
- Guidance Disappointing
- Q1 2026 subscription revenue: $3.65B (20% growth, but 18.5% cc)
- Full year 2026: $15.53-15.57B (19.5-20% cc growth)
- Market wanted to see 22%+ growth
- OpenAI Partnership Still Vague
- Multi-year deal announced but no revenue visibility
- No clear timeline for material customer adoption
- Stock gave back initial gains after announcement
Numbers Are In
ServiceNow numbers are in and the stock in now down 3%.
| Metric | Expected | Actual | Result |
|---|---|---|---|
| Revenue | $3.53B | $3.466B | ❌ MISS by 1.8% |
| Subscription Revenue | ~$3.42-3.43B | $3.466B | ✅ BEAT |
| EPS (non-GAAP) | $0.87 | $0.92 | ✅ BEAT by 5.7% |
| cRPO Growth | ~22-23% | 25% (21% cc) | ✅ BEAT |
| Operating Margin | ~30-31% | 31% | ✅ MET/BEAT |
| Free Cash Flow Margin | ~35-40% | 57% | ✅ MASSIVE BEAT |
Still Waiting on NOW Earnings
Earnings should be here any moment, stock up 3% after-hours.
Bull and Bear Case
Bull Case
Consistent Beat Streak: ServiceNow beat EPS estimates in 11 of the last 12 quarters, averaging +11.4% surprise margins. Q3’s +12.94% beat and operating margin expansion to 16.8% show accelerating operational leverage.
AI Monetization Momentum: With 1,700 Now Assist customers live and AI consumption up 55x since May, the company is converting AI pilots into production-scale revenue driving subscription growth.
Valuation Disconnect: Trading at $129.33 versus analyst targets averaging $206, the stock appears oversold. DCF analysis suggests 34% undervaluation, and Bernstein sees “GenAI upside into H2 2026.”
Bear Case
Sector-Wide Pressure: Enterprise software stocks are underperforming on AI disruption fears. Salesforce is down 36% over one year—comparable to NOW’s 45% decline—suggesting sector headwinds.
Growth Deceleration Risk: Revenue growth slowed from 24% in Q3 2024 to 21.8% in Q3 2025. Bears worry AI can’t offset maturing core business growth.
Valuation Still Rich: Despite the selloff, NOW trades at 79x trailing P/E. Macro uncertainty pressuring enterprise IT budgets could compress the premium multiple further.
3 Takeaways From Last Quarter That Will Play Big Tonight
1. AI Consumption Is Exploding Faster Than Expected ServiceNow’s AI Agent Assist consumption increased 55x since May, driven by customers deploying agentic workflows that require 5-12x more AI calls than simple summarization tasks. The company now has 1,700 customers live on Now Assist, with 12 deals over $1 million (including one over $10 million). This consumption hockey stick validates that customers are moving beyond pilots to production-scale AI deployments.
2. The AI Control Tower Is Becoming a Major Growth Driver AI Control Tower deal volume more than quadrupled quarter-over-quarter, emerging as a critical differentiator. Enterprises struggling with AI sprawl—one customer killed 900 proof-of-concepts—are turning to ServiceNow for unified governance across their entire AI estate. This capability leverages ServiceNow’s CMDB advantage to provide visibility, security, and compliance that no competitor can match at scale.
3. CRM Is Now a Serious Disruption Opportunity ServiceNow’s AI-powered CPQ solution is winning displacement deals globally, with multiple million-dollar contracts. The company is reshaping customer experience by turning legacy CRM systems into AI-first platforms that connect sales, service, and operations. Partnerships with Genesys and customer wins like Pure Storage and Thrive demonstrate ServiceNow is credibly challenging entrenched CRM incumbents with an integrated AI platform approach.
ServiceNow (NYSE: NOW | NOW Price Prediction) reports fourth-quarter results today after the bell. After a rough stretch that’s seen shares fall 44% over the past 52 weeks, this report needs to show investors the company’s growth story remains intact.
What Changed Since Last Quarter
ServiceNow delivered a strong third quarter with revenue of $3.41 billion, up 22% year over year, and beat estimates by nearly 13%. The company generated $813 million in operating cash flow and maintained a gross margin above 77%. Management sounded confident about AI momentum.
Since then, shares dropped 14% in just one month. The stock is trading at $129, down from $147 at the start of 2026. That disconnect between business performance and stock price is what CEO Bill McDermott needs to address. As Jim Cramer put it, McDermott has to explain whether this is “a broken stock, not a broken company.”
The bigger story is ServiceNow’s expanded partnership with OpenAI, announced just days ago. The multi-year deal integrates advanced AI agents directly into the platform. Shares jumped 3.5% on that news, but quickly gave back gains. The question now is whether this translates into meaningful customer adoption and incremental revenue in the second half of 2026.
The Numbers to Watch
| Metric | Q4 2025 Estimate | YoY Growth |
|---|---|---|
| Revenue | $3.53B | +19% |
| EPS | $0.87 | +22% |
| Full Year Revenue | ~$13.2B | +20% |
| Full Year EPS | ~$3.41 | +34% |
Subscription revenue should land between $3.42 billion and $3.43 billion. BMO Capital expects slightly better than expected constant-currency growth, which would ease concerns about durability. ServiceNow has beaten estimates in seven of the last eight quarters, with an average beat of nearly 9%. Meeting the $0.87 estimate would be a disappointment given that track record.
Growth Durability Is the Real Question
I’ll be watching current remaining performance obligations more than the headline numbers. That metric tells you what’s already contracted and gives visibility into 2026 growth. Analysts want to see proof that the 20% revenue growth rate can hold as the company scales past $13 billion in annual revenue.
The OpenAI partnership matters, but only if ServiceNow can show customer adoption is accelerating. Bernstein expects GenAI to drive incremental revenue in the second half of 2026. If management can’t articulate a clear path from partnership announcement to revenue contribution, you’ll see the stock stay under pressure.
Net dollar retention is another critical metric. ServiceNow’s ability to expand within existing customer accounts has been a key growth driver. Any softness there would raise red flags about enterprise IT spending.
Why This Report Matters
ServiceNow is trading at 33x forward earnings, down from much higher multiples earlier in 2025. The valuation compression reflects broader software sector weakness, but also specific concerns about whether ServiceNow can maintain its premium growth rate. With 42 of 47 analysts rating the stock a buy and an average price target of $206, there’s clear conviction the business is sound.
This earnings call is where McDermott needs to close the gap between business performance and stock price. If he can show that AI investments are translating into customer wins and that growth durability isn’t a concern, you’ll see sentiment shift quickly. If the guidance disappoints or the AI narrative stays vague, shares could test that $125 low again.
Eric Bleeker has been investing for more than 20 years. He began his career working at Microsoft before joining Motley Fool, one of the largest publishers of financial research. In his 15 years at Motley Fool Eric served as the General Manager for Fool.com and led coverage in the Technology & Telecom sector. In addition, he was a featured columnist and has hosted dozens of investing seminars attended by more than a million total investors. Eric has more than 1,000 financial bylines to his name and has been featured in The Wall Street Journal, CNBC, Fox Business, and many other leading publications. He is currently focused on artificial intelligence investing and is a CFA Charterholoder.
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