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NOW Q2 Earnings Beat Estimates, Revenues Rise on Subscription Growth
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Key Takeaways
ServiceNow's Q2 earnings rose 11.1% as revenues climbed 24% to $3.99 billion.
NOW's subscription revenues jumped 24.5%, while cRPO grew 21% to $13.20 billion.
ServiceNow raised 2026 subscription guidance as AI annual contract value topped $1 billion.
ServiceNow (NOW - Free Report) reported second-quarter 2026 earnings of 90 cents per share, up 11.1% year over year. The figure beat the Zacks Consensus Estimate by 4.65%.
Revenues of $3.99 billion rose 24% year over year and surpassed the consensus mark by 1.65%. Results benefited from strong subscription demand, while current remaining performance obligations (cRPO) reached $13.20 billion.
ServiceNow, Inc. Price, Consensus and EPS Surprise
Subscription revenues increased 24.5% year over year to $3.88 billion. At constant currency (cc), subscription revenues rose 23%, 150 basis points (bps) above the high end of management’s guidance.
Professional services and other revenues advanced 8.5% to $110 million.
ServiceNow attributed the subscription outperformance to stronger net new annual contract value (NNACV) and a higher on-premise revenue mix, primarily from U.S. federal demand that shifted some revenues from the third quarter into the second quarter.
ServiceNow Builds Backlog and Expands Large Deals
In the second quarter of 2026, cRPO, or contracted revenues expected to be recognized within 12 months, grew 21% year over year. At cc, the metric increased 21.5%, exceeding guidance by 200 bps. Total remaining performance obligations (RPO) rose 21% year over year to $29 billion, or 22% at cc.
NOW recorded 123 transactions exceeding $1 million in NNACV, up nearly 40% year over year. The company ended the quarter with 658 customers generating more than $5 million in annual contract value, an increase of roughly 23%.
NOW’s AI and Workflow Portfolio Gains Traction
ServiceNow AI annual contract value crossed $1 billion. Net new AI annual contract value grew more than 40% sequentially, while deals containing at least five ServiceNow AI products increased 5.5 times year over year. The number of customers with Agentic AI in production expanded ninefold over the past nine months.
Demand was broad across workflows. ITSM appeared in 15 of the top 20 deals, ITOM in 18 and security and risk solutions in 16. CRM and industry workflows were also included in 16 of the top 20 deals, supported by momentum in configure-price-quote and sales and order management.
Non-GAAP total gross margin was 78%, down from 81% a year earlier. Subscription gross margin contracted 250 bps to 80.5%.
Non-GAAP operating income rose 22.8% year over year to $1.17 billion. Operating margin was unchanged at 29.5% and came in 300 bps above guidance due to revenue outperformance and the timing of spending, mainly in marketing.
NOW Generates Cash and Maintains Liquidity
ServiceNow ended the second quarter of 2026 with $2.50 billion in cash and cash equivalents. Current and long-term marketable securities totaled $4.20 billion.
Net cash provided by operating activities was $587 million, compared with $716 million in the year-ago quarter. Free cash flow increased to $634 million from $535 million, while free cash flow margin slipped 50 bps to 16%.
ServiceNow Raises 2026 Subscription Outlook
For the third quarter of 2026, NOW expects subscription revenues between $3.975 billion and $3.980 billion, implying 20.5% year-over-year growth and 20% growth at cc. cRPOs are projected to increase 19.5%, or 20% at cc. Non-GAAP operating margin is expected to be 31%.
For 2026, ServiceNow raised its subscription revenue guidance to $15.76-$15.78 billion from $15.735-$15.775 billion. The midpoint increased by $15 million. The updated range represents 22.5% year-over-year growth and 21% growth at cc.
The company continues to expect an 81% non-GAAP subscription gross margin, a 31.5% non-GAAP operating margin and a 35% free cash flow margin for 2026.
ServiceNow noted that stronger AI adoption and greater use of hyperscaler partnerships are reflected in the gross-margin outlook.
Amphenol, Bandwidth and Fortinet are set to report their second-quarter 2026 results on July 29. Year to date, shares of Amphenol, Bandwidth and Fortinet have returned 16.6%, 316.7% and 95.3%, respectively.
View the Zacks #1 Rank List
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NOW Q2 Earnings Beat Estimates, Revenues Rise on Subscription Growth
Key Takeaways
ServiceNow (NOW - Free Report) reported second-quarter 2026 earnings of 90 cents per share, up 11.1% year over year. The figure beat the Zacks Consensus Estimate by 4.65%.
Revenues of $3.99 billion rose 24% year over year and surpassed the consensus mark by 1.65%. Results benefited from strong subscription demand, while current remaining performance obligations (cRPO) reached $13.20 billion.
ServiceNow, Inc. Price, Consensus and EPS Surprise
ServiceNow, Inc. price-consensus-eps-surprise-chart | ServiceNow, Inc. Quote
NOW Gains From Broad Subscription Momentum
Subscription revenues increased 24.5% year over year to $3.88 billion. At constant currency (cc), subscription revenues rose 23%, 150 basis points (bps) above the high end of management’s guidance.
Professional services and other revenues advanced 8.5% to $110 million.
ServiceNow attributed the subscription outperformance to stronger net new annual contract value (NNACV) and a higher on-premise revenue mix, primarily from U.S. federal demand that shifted some revenues from the third quarter into the second quarter.
ServiceNow Builds Backlog and Expands Large Deals
In the second quarter of 2026, cRPO, or contracted revenues expected to be recognized within 12 months, grew 21% year over year. At cc, the metric increased 21.5%, exceeding guidance by 200 bps. Total remaining performance obligations (RPO) rose 21% year over year to $29 billion, or 22% at cc.
NOW recorded 123 transactions exceeding $1 million in NNACV, up nearly 40% year over year. The company ended the quarter with 658 customers generating more than $5 million in annual contract value, an increase of roughly 23%.
NOW’s AI and Workflow Portfolio Gains Traction
ServiceNow AI annual contract value crossed $1 billion. Net new AI annual contract value grew more than 40% sequentially, while deals containing at least five ServiceNow AI products increased 5.5 times year over year. The number of customers with Agentic AI in production expanded ninefold over the past nine months.
Demand was broad across workflows. ITSM appeared in 15 of the top 20 deals, ITOM in 18 and security and risk solutions in 16. CRM and industry workflows were also included in 16 of the top 20 deals, supported by momentum in configure-price-quote and sales and order management.
ServiceNow’s Margins Reflect Revenue Outperformance
Non-GAAP total gross margin was 78%, down from 81% a year earlier. Subscription gross margin contracted 250 bps to 80.5%.
Non-GAAP operating income rose 22.8% year over year to $1.17 billion. Operating margin was unchanged at 29.5% and came in 300 bps above guidance due to revenue outperformance and the timing of spending, mainly in marketing.
NOW Generates Cash and Maintains Liquidity
ServiceNow ended the second quarter of 2026 with $2.50 billion in cash and cash equivalents. Current and long-term marketable securities totaled $4.20 billion.
Net cash provided by operating activities was $587 million, compared with $716 million in the year-ago quarter. Free cash flow increased to $634 million from $535 million, while free cash flow margin slipped 50 bps to 16%.
ServiceNow Raises 2026 Subscription Outlook
For the third quarter of 2026, NOW expects subscription revenues between $3.975 billion and $3.980 billion, implying 20.5% year-over-year growth and 20% growth at cc. cRPOs are projected to increase 19.5%, or 20% at cc. Non-GAAP operating margin is expected to be 31%.
For 2026, ServiceNow raised its subscription revenue guidance to $15.76-$15.78 billion from $15.735-$15.775 billion. The midpoint increased by $15 million. The updated range represents 22.5% year-over-year growth and 21% growth at cc.
The company continues to expect an 81% non-GAAP subscription gross margin, a 31.5% non-GAAP operating margin and a 35% free cash flow margin for 2026.
ServiceNow noted that stronger AI adoption and greater use of hyperscaler partnerships are reflected in the gross-margin outlook.
Zacks Rank & Stocks to Consider
ServiceNow currently has a Zacks Rank #4 (Sell).
Some better-ranked stocks in the broader Zacks Computer and Technology sector that are set to report their quarterly results are Amphenol (APH - Free Report) , Bandwidth (BAND - Free Report) and Fortinet (FTNT - Free Report) . Amphenol, Bandwidth and Fortinet sport a Zacks Rank #1 (Strong Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Amphenol, Bandwidth and Fortinet are set to report their second-quarter 2026 results on July 29. Year to date, shares of Amphenol, Bandwidth and Fortinet have returned 16.6%, 316.7% and 95.3%, respectively.