Overview
ServiceNow
NOW · NYSEQ3 2026Software · Enterprise Workflow and AI Platform
Since the Report − 18.1%
Revenue grew 20.5% year over year, EPS missed the estimate by 2.0%; the stock fell 18.1% in its first reaction.
- RevenueQ3
- $4.11B
- ▲ 20.5% YoY · Beat Estimate by 0.4%
- EPSAdjusted
- $1.00
- Estimate $1.02 · 2.0% Below
Verdict
HOLDServiceNow beat its own guidance on every line in the third quarter, but landed roughly in line with market expectations. The stock fell 18.1% after hours on an 18.5% cRPO growth outlook for the fourth quarter. The next thing to watch is how fast AI contracts show up in cRPO.
Close on Report DayOct 28
$150.13▼ 18.1%Report-Day Move
- Market Cap(Today)
- ≈ $127 B
- 1Y Return(At Report)
- − 21%
- P/E(At Today's Price · $3.79 · Trailing 12M)
- 32.4
- Net Margin(Trailing 12M)
- 11.3%
Earnings Summary
In 30 Seconds- Revenue rose 20.5% to $4.11 billion, beating the estimate by 0.4%, while adjusted EPS missed by 2.0%.
- The company raised its AI ACV target to $1.7 billion but guided fourth-quarter cRPO growth to 18.5%.
- The stock fell 18.1% after hours to $122.91 as the cRPO slowdown took center stage.
The Numbers
Subscription Revenue
$3.99B
▲ 21% YoY · Guidance Top End $3.98B
cRPO
$13.65B
▲ 21% Constant Currency · Guidance 20%
Adjusted Operating Margin
32.5%
Guidance 31% · Year Ago 33.5%
Stock Reaction
▼ 18.1%
After Hours $122.91 · Base $150.13
Quarterly Revenue ($ Billion)
3.30
Q3 25 · $3.30 B
3.47
Q4 25 · $3.47 B · QoQ + 5.1%
3.67
Q1 26 · $3.67 B · QoQ + 5.9%
3.88
Q2 26 · $3.88 B · QoQ + 5.6%
3.99
Q3 26 · $3.99 B · QoQ + 2.9% · YoY + 20.9%
4.245–4.255
Q4 26E · 4.245–4.255 · QoQ + 6.6% · YoY + 22.6%
- Q3 25
- Q4 25
- Q1 26
- Q2 26
- Q3 26
- Q4 26E
Q4 2026 Company Guidance
- Q4 Subscription Revenue4.245 – 4.255 B4.245 B4.255 B
Midpoint 4.25 · 21.5% Growth in Constant Currency22.6% YoY Growth ▲
- Q4 cRPO Growth (Constant Currency)18.5%
Q3 Actual 21%2.5-Point Slowdown ▼
- Q4 Adjusted Operating Margin32%
Year Ago 31% · Q3 Actual 32.5%1.0-Point YoY Expansion ▲
- 2026 Subscription Revenue15.78 – 15.79 B15.78 B15.79 B
Prior Guidance 15.76–15.78 · 22.5% YoYRaised 0.1% ▲
- 2026 Free Cash Flow Margin36%
Prior Target 35%Raised 1.0 Point ▲
How to Read the Chart
The blue band is the company's low-high range; its length shows how much room the company left itself. The black triangle and the line beneath it mark where the market expected, and the notch in the band is the range's midpoint. The triangle appears only where a market expectation is known. When the company gave a single number rather than a range and no market expectation is known, that row gets no band at all: there is no length to measure and no position to compare. Axis is ±0.1% around the midpoint.
Segment and KPI Data
Revenue by Segment
- North America$2.57 BShare 62.7%▲ 20.7% YoY
95% of revenue from the US
- Europe, Middle East and Africa$1.03 BShare 25.0%▲ 17.6% YoY
- Asia Pacific and Other$505 MShare 12.3%▲ 25.9% YoY
Key Metrics
Current Remaining Performance Obligations (cRPO)
$13.7 B
▲ 20.5% YoYPress Release
Remaining Performance Obligations (RPO)
$29.7 B
▲ 22.0% YoYPress Release
Free Cash Flow
$822 M
▲ 38.9% YoYPress Release
Free Cash Flow Margin
20.0%
Press Release
Customers Above $5M ACV
680 customers
▲ 23.0% YoYPress Release
Deals Above $5M Net New ACV
19 deals
▲ 135.0% YoYPress Release
Shares are computed over the segment total: $4.11 B. Source: 10-Q.
Metrics come only from the company's own filings; each one names the document it was taken from.
“These Q3 results represent a trifecta moment for ServiceNow: quarterly results beating expectations across the board again, significantly accelerating AI performance at the largest quantum yet, and a hybrid business model shifting more to consumption. Our ambition is to be the governed execution layer for enterprise AI. ServiceNow basically is the execution layer, and I believe we're the execution layer for the entire AI economy.”
- AI ACV Target of $1.7B
- Consumption-based Hybrid Model
- Governed Execution Layer
Summary and Review
Summary
ServiceNow's total revenue rose 20.5% year over year to $4.11 billion. The market expected $4.09 billion, so the 0.4% gap keeps the revenue gate in line. Subscription revenue rose 21% to $3.99 billion. Adjusted EPS was $1.00 against an estimate of $1.02. That 2.0% gap also leaves the profit gate in line. The full-year subscription revenue target was raised by 0.1%. Fourth-quarter cRPO growth, however, slows to 18.5%. All three gates are in line, and none clearly opened.
The stock fell 18.1% after hours to $122.91. It had already closed the regular session down 3.0% at $150.13. cRPO sits at the center of the selloff. Contracts that turn into revenue over the next 12 months grew 21% in constant currency in the third quarter. The company expects 18.5% for the fourth quarter. CFO Gina Mastantuono tied the slowdown to early renewals, on-premise public-sector deals and accounting effects. The market read this report as a growth-rate story rather than an AI story.
Our view is hold. The company beat its own guidance, cash generation strengthened and AI demand is accelerating. Against market expectations, however, the quarter was only in line. Acquisitions weighed on margins, and forward contract growth is slowing. The score of 56 reflects a quarter with all three gates in line, held mid-band by cRPO and margin caveats. The share drop says more about high expectations than about the quality of the quarter.
Full Review
Guidance beaten, expectations matched.
Subscription revenue came in at $3.99 billion. The company's own guidance was $3.975 to $3.980 billion, so the top end was beaten. cRPO grew 21% in constant currency, 1 point above guidance. The adjusted operating margin was 32.5%, beating the 31% guidance by 1.5 points. Against market expectations the picture is dimmer. Revenue landed within 0.4% of the estimate. Adjusted EPS came in 2.0% short. One source of the profit gap is interest. Net interest income swung from $109 million a year ago to minus $12 million. Acquisitions were financed with debt. Adjusted net income rose 4.7% to $1.04 billion. GAAP EPS, by contrast, fell from $0.48 to $0.27. The gap comes from stock-based pay, amortization and severance costs. For a general framework on reading earnings day, see our guide.
AI contracts are accelerating.
According to the earnings call, AI net new annual contract value (ACV) grew 65% year over year. The company raised its year-end target for the second time this year. The target was $1 billion at the start of the year and rose to $1.5 billion in May. It now stands at $1.7 billion. The number of AI deals above $1 million grew 4.5 times. Per the press release, agentic AI consumption in production is up more than 13 times year to date. ServiceNow signed 19 new deals above $5 million, up 135%. Customers with more than $5 million in ACV reached 680. That count grew about 23% in a year. The EmployeeWorks employee portal reached $100 million in ACV in under three quarters. Control Tower net new ACV grew more than sixfold year over year.
Why cRPO is slowing.
The company guides fourth-quarter cRPO growth to 18.5% in constant currency. Compared with 21% in the third quarter, that is a 2.5-point slowdown. CFO Mastantuono gave three reasons. First, strong early renewals pulled some deals from the fourth quarter into the third. Second, on-premise public-sector deals make up a larger share, cutting cRPO by about 0.25 points. Third, certain contract provisions keep about 0.5 points of backlog growth out of cRPO. The company is also providing deployment support in large deals. The value of that support is booked in professional services rather than subscriptions. The impact was 0.25 points in the third quarter and about 0.5 points in the fourth. Management says these items will flow into revenue. In the CFO's words, cRPO is a good but imperfect indicator of next year's revenue.
Margins and the balance sheet show the deals.
The adjusted subscription gross margin was 80%. A year ago it was 83%, a 3.0-point contraction. The GAAP operating margin fell from 17% to 9.5%. Amortization of acquired intangibles rose from $33 million to $198 million. Goodwill climbed from $3.58 billion at the start of the year to $10.01 billion. Net cash spent on acquisitions reached $9.17 billion over nine months. Total debt rose from $1.49 billion to $7.52 billion. Cash flow, however, is strong. Free cash flow rose 39% to $822 million. Its margin improved from 17.5% to 20%. Capital spending dropped from $235 million to $91 million. The company raised its full-year free cash flow margin target from 35% to 36%. For how to read cash flow, see the guide.
Next quarter, watch one line.
In the fourth quarter, watch a single number: cRPO growth in constant currency. The company guides 18.5%. If it comes in at 18.5% or higher, management's explanation holds. The slowdown then reads as a timing effect. If it drops below 18%, AI demand is not yet turning into contract growth. The second measure is AI ACV. If it clears $1.7 billion at year end, the growth story carries into 2027. If it falls short of the target, this quarter's optimism was priced too early. The third measure is the adjusted subscription gross margin. The full-year target is 81%, and the nine-month actual is also 81%. If it drops below 80% in the fourth quarter, the margin drag from acquisitions is lasting longer than expected.
Looking Ahead
Strengths and Risks
5 Strengths · 6 RisksStrengths
5- Subscription revenue of $3.99 billion beat the top end of the company's own guidance.
- AI net new ACV grew 65% year over year, and the year-end target was raised to $1.7 billion.
- The company signed 19 new deals above $5 million, a count up 135% in a year.
- Free cash flow rose 39% year over year to $822 million.
- The expanded OpenAI partnership and a five-year HPE agreement carry demand forward.
Risks
6- Fourth-quarter cRPO guidance is 18.5%, a 2.5-point slowdown from 21% in the third quarter.
- Adjusted EPS of $1.00 came in 2.0% below market expectations.
- Acquisitions cut the adjusted subscription gross margin from 83% to 80% in a year.
- The GAAP operating margin fell from 17% to 9.5% as amortization and severance costs rose.
- Total debt rose from $1.49 billion at the start of the year to $7.52 billion.
- Deployment support will reduce fourth-quarter subscription growth by about 0.5 points.
What to Watch
4- Fourth-quarter earnings are expected in late January 2027.
- The company's year-end AI ACV target is $1.7 billion, and the actual figure will come with fourth-quarter earnings.
- CFO Gina Mastantuono will speak at the Wells Fargo conference on December 8 and at Barclays on December 9.
- After the ChatGPT plugin, the OpenAI partnership will add a Codex integration and security solutions.
Upcoming Earnings
To Understand This