We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
NOW Q3 Earnings Lag Estimates, Revenues Rise on Subscription Growth
Read MoreHide Full Article
Key Takeaways
NOW's Q3 earnings missed estimates by 1.96%, while revenues rose 20.5% to $4.11 billion.
Subscription revenues jumped 21% to $3.99 billion, while AI net new ACV surged 65% year over year.
NOW raised its 2026 subscription revenue guidance to $15.78-$15.79 billion and AI ACV target to $1.7 billion.
ServiceNow (NOW - Free Report) reported third-quarter 2026 non-GAAP earnings of $1.00 per share, up 5.3% year over year. The figure missed the Zacks Consensus Estimate by 1.96%.
Revenues of $4.11 billion increased 20.5% year over year and surpassed the consensus mark by 0.46%. Results benefited from strong subscription demand and accelerating AI adoption. Current remaining performance obligations (cRPO) reached $13.65 billion.
NOW Benefits From Strong Subscription Revenue Growth
Subscription revenues increased 21% year over year to $3.99 billion. At constant currency (cc), subscription revenues grew 20.5%, exceeding the high end of management's guidance by 50 basis points (bps).
ServiceNow, Inc. Price, Consensus and EPS Surprise
Professional services and other revenues advanced 10% year over year to $118 million.
ServiceNow attributed its subscription outperformance to broad demand across enterprise workflows and AI solutions. However, investments in deployment expertise shifted approximately 25 bps of subscription revenue growth to professional services revenues as the company accelerated AI implementation for select large customers.
ServiceNow Expands Backlog and Large Customer Deals
In the third quarter of 2026, cRPO, representing contracted revenues expected to be recognized within 12 months, grew 20.5% year over year. At cc, the metric increased 21%, exceeding guidance by 100 bps. Total remaining performance obligations (RPO) increased 22% year over year to $29.7 billion, or 22.5% at cc.
NOW recorded 19 transactions exceeding $5 million in net new annual contract value (ACV), up more than 135% year over year. The company ended the quarter with 680 customers generating more than $5 million in ACV, an increase of approximately 23%.
ServiceNow maintained a 98% renewal rate. Additionally, 19 of its top 20 deals included six or more products, reflecting continued expansion among large enterprise customers.
NOW Sees Accelerating AI and Workflow Adoption
ServiceNow’s AI net new ACV increased 65% year over year. Deals exceeding $1 million in AI ACV grew 4.5 times, while transactions involving five or more AI products increased more than 8.5 times. Year-to-date agentic AI consumption in production surged more than 13 times.
Demand remained broad across workflows. IT Service Management appeared in 11 of the top 20 deals, while IT Operations Management featured in nine. Security and Risk solutions were included in 16 deals, while CRM and industry workflows appeared in 13.
NOW also witnessed strong momentum in emerging AI offerings. Control Tower net new ACV grew more than sixfold year over year, while EmployeeWorks reached $100 million in ACV in less than three quarters.
ServiceNow's Margins Face Cost Pressures
Non-GAAP total gross margin contracted to 77.5% from 81% in the year-ago quarter. Subscription gross margin declined to 80% from 83.5%, reflecting pressure on profitability.
GAAP operating expenses increased to $2.51 billion from $2.06 billion. Research and development expenses rose to $956 million from $750 million, while sales and marketing expenses increased to $1.27 billion from $1.06 billion.
Non-GAAP operating income increased to $1.34 billion from $1.14 billion a year earlier. Operating margin declined 100 bps to 32.5% but exceeded NOW’s guidance by 150 bps, supported by revenue outperformance, efficiency gains and spending timing.
NOW Generates Cash and Maintains Liquidity
ServiceNow ended the third quarter of 2026 with $2.39 billion in cash and cash equivalents. Current and long-term marketable securities totaled $4.57 billion.
Net cash provided by operating activities increased to $839 million from $813 million in the year-ago quarter. Free cash flow climbed to $822 million from $592 million, while free cash flow margin contracted to 20% from 21.5%.
NOW’s internal AI deployments generated more than $1 billion in annualized productivity value, supporting operational efficiency despite continued investment in innovation.
ServiceNow Raises 2026 Subscription Revenue Outlook
For the fourth quarter of 2026, NOW expects subscription revenues between $4.245 billion and $4.255 billion, implying 22.5-23% year-over-year growth and 21.5% growth at cc. cRPO is projected to increase 18.5% at cc. Non-GAAP operating margin is expected to be 32%.
For 2026, ServiceNow raised its subscription revenue guidance to $15.78-$15.79 billion, increasing the midpoint by $15 million. The updated outlook represents 22.5% year-over-year growth and 21% growth at cc.
The company maintained its non-GAAP subscription gross margin and operating margin expectations at 81% and 31.5%, respectively. However, NOW raised its free cash flow margin outlook by 100 bps to 36%, primarily reflecting lower capital expenditures.
ServiceNow also increased its year-end AI ACV target to $1.7 billion from the previously announced $1.5 billion, reflecting stronger AI monetization and enterprise adoption.
Both Shopify and AMETEK are expected to report their respective quarterly results on Nov. 3, while Affirm will report its on Nov. 5. Shares of Affirm have dropped 1.5%, while Shopify and AMETEK have returned 4.5% and 20.8%, year to date, respectively.
View the Zacks #1 Rank List
Image: Bigstock
NOW Q3 Earnings Lag Estimates, Revenues Rise on Subscription Growth
Key Takeaways
ServiceNow (NOW - Free Report) reported third-quarter 2026 non-GAAP earnings of $1.00 per share, up 5.3% year over year. The figure missed the Zacks Consensus Estimate by 1.96%.
Revenues of $4.11 billion increased 20.5% year over year and surpassed the consensus mark by 0.46%. Results benefited from strong subscription demand and accelerating AI adoption. Current remaining performance obligations (cRPO) reached $13.65 billion.
NOW Benefits From Strong Subscription Revenue Growth
Subscription revenues increased 21% year over year to $3.99 billion. At constant currency (cc), subscription revenues grew 20.5%, exceeding the high end of management's guidance by 50 basis points (bps).
ServiceNow, Inc. Price, Consensus and EPS Surprise
ServiceNow, Inc. price-consensus-eps-surprise-chart | ServiceNow, Inc. Quote
Professional services and other revenues advanced 10% year over year to $118 million.
ServiceNow attributed its subscription outperformance to broad demand across enterprise workflows and AI solutions. However, investments in deployment expertise shifted approximately 25 bps of subscription revenue growth to professional services revenues as the company accelerated AI implementation for select large customers.
ServiceNow Expands Backlog and Large Customer Deals
In the third quarter of 2026, cRPO, representing contracted revenues expected to be recognized within 12 months, grew 20.5% year over year. At cc, the metric increased 21%, exceeding guidance by 100 bps. Total remaining performance obligations (RPO) increased 22% year over year to $29.7 billion, or 22.5% at cc.
NOW recorded 19 transactions exceeding $5 million in net new annual contract value (ACV), up more than 135% year over year. The company ended the quarter with 680 customers generating more than $5 million in ACV, an increase of approximately 23%.
ServiceNow maintained a 98% renewal rate. Additionally, 19 of its top 20 deals included six or more products, reflecting continued expansion among large enterprise customers.
NOW Sees Accelerating AI and Workflow Adoption
ServiceNow’s AI net new ACV increased 65% year over year. Deals exceeding $1 million in AI ACV grew 4.5 times, while transactions involving five or more AI products increased more than 8.5 times. Year-to-date agentic AI consumption in production surged more than 13 times.
Demand remained broad across workflows. IT Service Management appeared in 11 of the top 20 deals, while IT Operations Management featured in nine. Security and Risk solutions were included in 16 deals, while CRM and industry workflows appeared in 13.
NOW also witnessed strong momentum in emerging AI offerings. Control Tower net new ACV grew more than sixfold year over year, while EmployeeWorks reached $100 million in ACV in less than three quarters.
ServiceNow's Margins Face Cost Pressures
Non-GAAP total gross margin contracted to 77.5% from 81% in the year-ago quarter. Subscription gross margin declined to 80% from 83.5%, reflecting pressure on profitability.
GAAP operating expenses increased to $2.51 billion from $2.06 billion. Research and development expenses rose to $956 million from $750 million, while sales and marketing expenses increased to $1.27 billion from $1.06 billion.
Non-GAAP operating income increased to $1.34 billion from $1.14 billion a year earlier. Operating margin declined 100 bps to 32.5% but exceeded NOW’s guidance by 150 bps, supported by revenue outperformance, efficiency gains and spending timing.
NOW Generates Cash and Maintains Liquidity
ServiceNow ended the third quarter of 2026 with $2.39 billion in cash and cash equivalents. Current and long-term marketable securities totaled $4.57 billion.
Net cash provided by operating activities increased to $839 million from $813 million in the year-ago quarter. Free cash flow climbed to $822 million from $592 million, while free cash flow margin contracted to 20% from 21.5%.
NOW’s internal AI deployments generated more than $1 billion in annualized productivity value, supporting operational efficiency despite continued investment in innovation.
ServiceNow Raises 2026 Subscription Revenue Outlook
For the fourth quarter of 2026, NOW expects subscription revenues between $4.245 billion and $4.255 billion, implying 22.5-23% year-over-year growth and 21.5% growth at cc. cRPO is projected to increase 18.5% at cc. Non-GAAP operating margin is expected to be 32%.
For 2026, ServiceNow raised its subscription revenue guidance to $15.78-$15.79 billion, increasing the midpoint by $15 million. The updated outlook represents 22.5% year-over-year growth and 21% growth at cc.
The company maintained its non-GAAP subscription gross margin and operating margin expectations at 81% and 31.5%, respectively. However, NOW raised its free cash flow margin outlook by 100 bps to 36%, primarily reflecting lower capital expenditures.
ServiceNow also increased its year-end AI ACV target to $1.7 billion from the previously announced $1.5 billion, reflecting stronger AI monetization and enterprise adoption.
Zacks Rank & Stocks to Consider
ServiceNow currently has a Zacks Rank #4 (Sell).
Shopify (SHOP - Free Report) , AMETEK (AME - Free Report) and Affirm (AFRM - Free Report) are some better-ranked stocks in the broader Zacks Computer and Technology sector. Each of the three stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Both Shopify and AMETEK are expected to report their respective quarterly results on Nov. 3, while Affirm will report its on Nov. 5. Shares of Affirm have dropped 1.5%, while Shopify and AMETEK have returned 4.5% and 20.8%, year to date, respectively.