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ServiceNow Beats on Q2 Earnings, Raises Full-Year Subscription Outlook
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Key Takeaways
ServiceNow beat Q2 earnings and revenue estimates and raised its fiscal 2026 subscription revenue outlook.
NOW's AI business topped $1B in ACV as enterprise adoption and agentic AI deployments accelerated.
ServiceNow reported 98% renewal rates, rising cRPO, and strong large-customer and AI product momentum.
ServiceNow (NOW - Free Report) reported impressive second-quarter fiscal 2026 results, surpassing Wall Street expectations on both the top and bottom lines as accelerating adoption of its AI platform, robust enterprise demand, and continued execution across its workflow portfolio fueled another quarter of strong growth.
The company reported non-GAAP earnings of 90 cents per share, which beat the Zacks Consensus Estimate of 86 cents by 4.7%. Revenues totaled $3.99 billion, exceeding the consensus estimate of $3.92 billion.
ServiceNow, Inc. Price, Consensus and EPS Surprise
Subscription revenues, ServiceNow's largest business, climbed 24.5% year over year to $3.88 billion, while current remaining performance obligations (cRPO) rose 21% to $13.2 billion, reflecting continued customer demand and longer contract durations. Remaining performance obligations reached $29 billion, up 21% from the prior-year period.
Management highlighted that the company exceeded the high end of its guidance across every major top-line and profitability metric. Chairman and CEO Bill McDermott noted that ServiceNow AI surpassed $1 billion in annual contract value (ACV) during the quarter, while agentic AI deployments increased ninefold over the past nine months. He emphasized that enterprises increasingly view ServiceNow's AI Control Tower as the governance layer required to securely deploy AI across organizations.
President and CFO Gina Mastantuono said AI demand continued to outperform internal expectations, with net new AI ACV accelerating sequentially and customers increasingly adopting multiple AI products simultaneously. The company also reported a best-in-class renewal rate of 98%, ended the quarter with 658 customers generating more than $5 million in ACV, and recorded 123 transactions exceeding $1 million in net new ACV, representing nearly 40% year-over-year growth.
AI Platform Driving Enterprise Expansion
Management devoted much of the earnings call to highlighting the growing strategic importance of the company's AI platform.
During the quarter, ServiceNow launched Otto, a unified AI experience integrating Now Assist, Moveworks, and AI Experience. The company also expanded AI Control Tower with enhanced governance, security, and observability capabilities while introducing new autonomous AI specialists across IT, CRM, employee services and security.
Executives stressed that enterprises are moving beyond AI experimentation toward measurable business outcomes. According to management, customers increasingly favor deterministic AI capable of completing work rather than simply providing recommendations.
The company also pointed to strong momentum across cybersecurity, where AI Control Tower, Armis, and Veza are expanding ServiceNow's security portfolio. McDermott described cybersecurity as one of the company's fastest-growing businesses and a significant long-term growth opportunity.
Beyond AI, ServiceNow strengthened partnerships with NVIDIA, Microsoft, AWS, Accenture, Experian, Lenovo, FedEx, and TeamViewer while outlining ambitious long-term financial targets during its Financial Analyst Day, including more than $30 billion in subscription revenues and a Rule of 60+ by 2030.
Guidance Raised Following Strong Quarter
Encouraged by stronger-than-expected net new ACV generation, ServiceNow raised its full-year subscription revenue outlook.
For the third quarter of fiscal 2026, the company expects subscription revenues to be between $3.975 billion and $3.980 billion, representing approximately 20% constant currency growth, with cRPO growth of roughly 20%.
For fiscal 2026, ServiceNow now projects subscription revenues of $15.76 billion to $15.78 billion, implying approximately 21% constant currency growth. Management expects subscription gross margin of 81%, operating margin of 31.5%, and free cash flow margin of 35%.
Executives acknowledged that stronger U.S. federal demand accelerated some on-premise subscription revenues into the second quarter, but emphasized that underlying net new ACV strength, not timing alone, supported the higher full-year guidance.
Management Commentary
During the question-and-answer session, executives expressed confidence that AI adoption remains in its early stages.
Management highlighted that more than 40 customers are already deploying its Level 1 AI specialists, with some organizations automating 80-85% of service requests while reducing resolution times from days to approximately 20 minutes. The company also indicated that first-time buyers of ServiceNow's agentic AI products increased more than 45% year over year, reinforcing expectations that AI will account for 30% of ACV by 2030.
Executives further emphasized that ServiceNow's hybrid AI pricing model, combining licensing and usage-based elements, continues to resonate with enterprise customers while supporting pricing uplifts consistent with previously communicated targets.
Zacks Rank & Style Scores
ServiceNow currently carries a Zacks Rank #4 (Sell).
View the Zacks #1 Rank List
Image: Bigstock
ServiceNow Beats on Q2 Earnings, Raises Full-Year Subscription Outlook
Key Takeaways
ServiceNow (NOW - Free Report) reported impressive second-quarter fiscal 2026 results, surpassing Wall Street expectations on both the top and bottom lines as accelerating adoption of its AI platform, robust enterprise demand, and continued execution across its workflow portfolio fueled another quarter of strong growth.
The company reported non-GAAP earnings of 90 cents per share, which beat the Zacks Consensus Estimate of 86 cents by 4.7%. Revenues totaled $3.99 billion, exceeding the consensus estimate of $3.92 billion.
ServiceNow, Inc. Price, Consensus and EPS Surprise
ServiceNow, Inc. price-consensus-eps-surprise-chart | ServiceNow, Inc. Quote
Subscription revenues, ServiceNow's largest business, climbed 24.5% year over year to $3.88 billion, while current remaining performance obligations (cRPO) rose 21% to $13.2 billion, reflecting continued customer demand and longer contract durations. Remaining performance obligations reached $29 billion, up 21% from the prior-year period.
Management highlighted that the company exceeded the high end of its guidance across every major top-line and profitability metric. Chairman and CEO Bill McDermott noted that ServiceNow AI surpassed $1 billion in annual contract value (ACV) during the quarter, while agentic AI deployments increased ninefold over the past nine months. He emphasized that enterprises increasingly view ServiceNow's AI Control Tower as the governance layer required to securely deploy AI across organizations.
President and CFO Gina Mastantuono said AI demand continued to outperform internal expectations, with net new AI ACV accelerating sequentially and customers increasingly adopting multiple AI products simultaneously. The company also reported a best-in-class renewal rate of 98%, ended the quarter with 658 customers generating more than $5 million in ACV, and recorded 123 transactions exceeding $1 million in net new ACV, representing nearly 40% year-over-year growth.
AI Platform Driving Enterprise Expansion
Management devoted much of the earnings call to highlighting the growing strategic importance of the company's AI platform.
During the quarter, ServiceNow launched Otto, a unified AI experience integrating Now Assist, Moveworks, and AI Experience. The company also expanded AI Control Tower with enhanced governance, security, and observability capabilities while introducing new autonomous AI specialists across IT, CRM, employee services and security.
Executives stressed that enterprises are moving beyond AI experimentation toward measurable business outcomes. According to management, customers increasingly favor deterministic AI capable of completing work rather than simply providing recommendations.
The company also pointed to strong momentum across cybersecurity, where AI Control Tower, Armis, and Veza are expanding ServiceNow's security portfolio. McDermott described cybersecurity as one of the company's fastest-growing businesses and a significant long-term growth opportunity.
Beyond AI, ServiceNow strengthened partnerships with NVIDIA, Microsoft, AWS, Accenture, Experian, Lenovo, FedEx, and TeamViewer while outlining ambitious long-term financial targets during its Financial Analyst Day, including more than $30 billion in subscription revenues and a Rule of 60+ by 2030.
Guidance Raised Following Strong Quarter
Encouraged by stronger-than-expected net new ACV generation, ServiceNow raised its full-year subscription revenue outlook.
For the third quarter of fiscal 2026, the company expects subscription revenues to be between $3.975 billion and $3.980 billion, representing approximately 20% constant currency growth, with cRPO growth of roughly 20%.
For fiscal 2026, ServiceNow now projects subscription revenues of $15.76 billion to $15.78 billion, implying approximately 21% constant currency growth. Management expects subscription gross margin of 81%, operating margin of 31.5%, and free cash flow margin of 35%.
Executives acknowledged that stronger U.S. federal demand accelerated some on-premise subscription revenues into the second quarter, but emphasized that underlying net new ACV strength, not timing alone, supported the higher full-year guidance.
Management Commentary
During the question-and-answer session, executives expressed confidence that AI adoption remains in its early stages.
Management highlighted that more than 40 customers are already deploying its Level 1 AI specialists, with some organizations automating 80-85% of service requests while reducing resolution times from days to approximately 20 minutes. The company also indicated that first-time buyers of ServiceNow's agentic AI products increased more than 45% year over year, reinforcing expectations that AI will account for 30% of ACV by 2030.
Executives further emphasized that ServiceNow's hybrid AI pricing model, combining licensing and usage-based elements, continues to resonate with enterprise customers while supporting pricing uplifts consistent with previously communicated targets.
Zacks Rank & Style Scores
ServiceNow currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The stock has a Value Score of D, a Growth Score of B, a Momentum Score of A, and a VGM Score of B.