ServiceNow’s stock slides on iffy subscription revenue forecast

Enterprise workflow cloud services company ServiceNow Inc. beat expectations as it delivered its fourth-quarter financial results after the bell today, but its guidance came up a tad short, and the stock was trading lower after-hours.

The software-as-a-service company reported earnings before certain costs such as stock compensation of 92 cents per share in the quarter, surpassing Wall Street’s consensus estimate of 88 cents. Revenue for the period rose 20% from a year earlier, to $3.57 billion, exceeding the $3.53 billion analyst target. All told, ServiceNow posted net income for the quarter of $401 million, up from a profit of just $384 million in the year-ago period.

Subscription revenue, which accounts for the lion’s share of the company’s sales, rose 21% in the quarter, to $3.47 billion, ahead of the analyst forecast of $3.42 billion.

ServiceNow Chairman and Chief Executive Bill McDermott (pictured) hailed the company’s latest beat as “significant,” and said it managed to accelerate net new business in the quarter. “We had substantial growth in licensed users, workflows and transactions on our platform,” he added. “With our consistent Rule of 55+ profile, there is no AI company in the enterprise better positioned for sustainable profitable revenue growth than ServiceNow.”

That may be true, but ServiceNow’s guidance for the current quarter failed to ignite much enthusiasm from investors. The company said it’s forecasting subscription revenue of between $3.65 billion and $3.66 billion in the current quarter, trailing the Street’s forecast of $3.66 billion to $3.7 billion.

The full-year forecast was a bit better, though. ServiceNow said it anticipates total subscription revenue of between $15.53 billion and $15.57 billion in fiscal 2026, just ahead of the midpoint of a very broad consensus estimate of $15.21 billion to $15.85 billion. Still, investors didn’t like what they saw, and ServiceNow’s stock fell more than 4% in extended trading.

With respect to that guidance, the company said its $2.9 billion acquisition of the artificial intelligence automation tooling firm MoveWorks Inc. is likely to contribute 100 basis points to its first-quarter and full-year subscription revenue growth, and also its remaining performance obligations growth.

ServiceNow Chief Financial Officer Gina Mastantuono told analysts on a conference call that the latest results demonstrate that the strength of its business is unwavering. “We’re truly a one-of-one company in the software space,” she insisted.

The company has recently embarked on an acquisition spree, spending billions of dollars to bolster its AI and security capabilities as it seeks to position itself as an “AI control tower” for enterprises. According to McDermott, the company aims to provide the tools and services enterprises require to “operate securely in an agentic AI world.”

Valoir analyst Rebecca Wettemann told SiliconANGLE that the company’s approach to AI appears to be resonating with customers, even if there are concerns over its revenue growth. “Value-focused, risk-averse customers aren’t looking for a ubiquitous AI platform that promises to sprinkle AI fairy dust across employees with ambition,” she said. “Preconfigured agents and workflows that package AI enable customers to identify areas where accelerating processes will deliver clear business benefits.”

Last month, ServiceNow announced a plan to buy the cybersecurity startup Armis Inc. in a deal valued at $7.75 billion. That came just weeks after it swooped to acquire the identity data security firm Veza Inc. for an undisclosed price. In between those two deals, it finally closed on the MoveWorks acquisition that was announced in March.

Some analysts have suggested that ServiceNow is looking to leverage its acquisitions to reinvigorate growth amid rising fears that legacy software giants are losing ground to AI. Mastantuono addressed that on the conference call, insisting that the deals do not represent a pivot from organic growth. “They represent an acceleration of it,” she said, adding that they bring key capabilities to the company that will unlock more value for its customers.

Wettemann believes the acquisitions demonstrate that ServiceNow is mainly looking to expand its total addressable market beyond just AI. “With investments spanning industry workflows, customer relationship management, security and risk, ServiceNow is growing both organically and by acquisition to expand its market opportunity,” she said.

ServiceNow said it ended the quarter with remaining performance obligations of $12.85 billion, up 25% from the same period last year. The board also approved an additional $5 billion to be spent on share buybacks.

The results came as ServiceNow revealed that it’s expanding its existing partnership with the AI model maker Anthropic PBC so it can further integrate that company’s flagship Claude models into its workflows and business processes in vertical markets such as life sciences and healthcare. Earlier this month, ServiceNow announced a similar agreement with OpenAI Group PBC in order to gain access to that company’s leading GPT models. For instance, it’s planning to use OpenAI’s models to power AI agents for customer service duties.

Photo: ServiceNow