The Good and the Bad For NOW
Live Blog Update #5 Published
← Back to Full Coverage: ServiceNow Earnings Preview: What to Watch When NOW Reports After the Bell
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
All Updates from Live Coverage
Live
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.
Live
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
Live
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 |
Live
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.
Live
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.
Joel South covers large-cap stocks, dividend investing, and major market trends, with a focus on earnings analysis, valuation, and turning complex data into actionable insights for investors.
He brings more than 15 years of experience as an investor and financial journalist, including 12 years at The Motley Fool, where he served as an investment analyst, Bureau Chief, and later led the Fool.com investing news desk. He has also co-hosted an investing podcast and appeared across TV and radio discussing market trends.
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