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ServiceNow Q3 Earnings Call Highlights AI Growth and Outlook Risks
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Key Takeaways
ServiceNow lifted its 2026 AI ACV target to $1.7B as AI contract value rose 65% year over year.
NOW raised its 2026 subscription revenue outlook to $15.785B amid strong AI adoption and consumption growth.
ServiceNow projects 18.5% Q4 cRPO growth, citing early renewals, on-premises deals and T4C provisions.
ServiceNow, Inc. (NOW - Free Report) used its third-quarter 2026 earnings call to emphasize accelerating artificial intelligence adoption, expanding consumption-based monetization and growing demand for enterprise AI governance.
Management raised its annual AI contract value target while addressing investor concerns about fourth-quarter backlog growth, subscription revenue recognition and the timing of AI-driven revenue acceleration.
NOW reported adjusted earnings of $1.00 per share, which marginally missed the Zacks Consensus Estimate of $1.02. Revenues of $4.11 billion exceeded the $4.09 billion consensus mark.
ServiceNow, Inc. Price, Consensus and EPS Surprise
Chairman and CEO Bill McDermott highlighted accelerating AI commercialization as a central development. AI net new annual contract value (ACV) increased 65% year over year, while the number of AI deals exceeding $1 million grew 4.5 times.
ServiceNow raised its year-end AI ACV target to $1.7 billion from $1.5 billion, marking its second increase this year.
President and CFO Gina Mastantuono reported that year-to-date production consumption of agentic AI increased more than 13 times year over year, demonstrating growing customer deployment activity.
ServiceNow Lifts Outlook Despite Revenue Adjustments
Mastantuono raised the 2026 subscription revenue guidance midpoint by $15 million to $15.785 billion, representing 21% constant-currency growth.
The company also increased its full-year free cash flow margin target to 36% from 35%, reflecting reduced capital expenditures. Its operating margin outlook remained 31.5%.
For the fourth quarter, management projected subscription revenues between $4.245 billion and $4.255 billion, with constant-currency growth of 21.5%.
NOW Addresses Slower cRPO Growth
Wolfe Research questioned the fourth-quarter current remaining performance obligations (cRPO) outlook, particularly its implications for future revenue acceleration.
Mastantuono attributed the projected 18.5% constant-currency growth partly to early renewals pulled into the third quarter and a greater proportion of on-premises contracts.
She also identified approximately 50 basis points of subscription backlog growth excluded from fourth-quarter cRPO because of T4C provisions, emphasizing that those amounts contribute to revenue.
ServiceNow Accelerates Enterprise AI Deployment
JPMorgan analysts questioned whether additional deployment support was translating into faster customer adoption.
Mastantuono explained that customers receiving implementation assistance adopted AI twice as fast during their first five weeks, supporting increased investment in deployment expertise.
During further questioning from Jefferies, she clarified that bundled deployment services reduced reported subscription revenue growth by approximately 25 basis points in the third quarter, with an anticipated 50-basis-point impact in the fourth quarter. Management does not expect this arrangement to persist indefinitely.
NOW Expands AI Governance and Consumption Channels
McDermott positioned the Super Intelligence Control Tower as a central platform for monitoring, governing and securing enterprise AI agents.
President, chief product officer and COO Amit Zavery explained during an Evercore ISI exchange that customers are adopting governance capabilities before deploying AI broadly into production.
The expanded OpenAI partnership introduces ChatGPT access to ServiceNow workflows through Action Fabric. Zavery told Needham that third-party interfaces can generate consumption revenue because underlying workflow execution remains within ServiceNow.
ServiceNow Targets Productivity and Operating Efficiency
Mastantuono reported more than $1 billion in annualized internal AI productivity value, more than twice the level recorded at the end of 2025.
Responding to Bernstein, she explained that sales operations staffing had declined while quota-bearing sales personnel increased by double digits.
McDermott emphasized that automation is enabling ServiceNow to redirect resources toward customer-facing activities and AI development rather than expanding administrative staffing.
NOW Maintains Focus on Long-Term AI Expansion
Management remained confident that expanding production deployments and consumption-based pricing would support revenue growth beyond 2026.
McDermott emphasized faster customer implementation, while Mastantuono reiterated the company's objective for AI to represent 30% of ACV by 2030.
What NOW's Zacks Rank and Style Scores Indicate
ServiceNow currently carries a Zacks Rank #4 (Sell), indicating an unfavorable earnings-estimate revision outlook. Its Value Score of D, Growth Score of C and VGM Score of D reflect relatively weak characteristics across several investment styles.
The company's Momentum Score of B represents a comparatively stronger technical signal. However, Zacks' framework prioritizes earnings-estimate revisions over individual Style Scores, limiting the significance of favorable momentum when combined with a Sell ranking. The Zacks Rank remains subject to change as analysts revise their estimates following the reported results.
View the Zacks #1 Rank List
Image: Bigstock
ServiceNow Q3 Earnings Call Highlights AI Growth and Outlook Risks
Key Takeaways
ServiceNow, Inc. (NOW - Free Report) used its third-quarter 2026 earnings call to emphasize accelerating artificial intelligence adoption, expanding consumption-based monetization and growing demand for enterprise AI governance.
Management raised its annual AI contract value target while addressing investor concerns about fourth-quarter backlog growth, subscription revenue recognition and the timing of AI-driven revenue acceleration.
NOW reported adjusted earnings of $1.00 per share, which marginally missed the Zacks Consensus Estimate of $1.02. Revenues of $4.11 billion exceeded the $4.09 billion consensus mark.
ServiceNow, Inc. Price, Consensus and EPS Surprise
ServiceNow, Inc. price-consensus-eps-surprise-chart | ServiceNow, Inc. Quote
NOW Raises AI Monetization Target Again
Chairman and CEO Bill McDermott highlighted accelerating AI commercialization as a central development. AI net new annual contract value (ACV) increased 65% year over year, while the number of AI deals exceeding $1 million grew 4.5 times.
ServiceNow raised its year-end AI ACV target to $1.7 billion from $1.5 billion, marking its second increase this year.
President and CFO Gina Mastantuono reported that year-to-date production consumption of agentic AI increased more than 13 times year over year, demonstrating growing customer deployment activity.
ServiceNow Lifts Outlook Despite Revenue Adjustments
Mastantuono raised the 2026 subscription revenue guidance midpoint by $15 million to $15.785 billion, representing 21% constant-currency growth.
The company also increased its full-year free cash flow margin target to 36% from 35%, reflecting reduced capital expenditures. Its operating margin outlook remained 31.5%.
For the fourth quarter, management projected subscription revenues between $4.245 billion and $4.255 billion, with constant-currency growth of 21.5%.
NOW Addresses Slower cRPO Growth
Wolfe Research questioned the fourth-quarter current remaining performance obligations (cRPO) outlook, particularly its implications for future revenue acceleration.
Mastantuono attributed the projected 18.5% constant-currency growth partly to early renewals pulled into the third quarter and a greater proportion of on-premises contracts.
She also identified approximately 50 basis points of subscription backlog growth excluded from fourth-quarter cRPO because of T4C provisions, emphasizing that those amounts contribute to revenue.
ServiceNow Accelerates Enterprise AI Deployment
JPMorgan analysts questioned whether additional deployment support was translating into faster customer adoption.
Mastantuono explained that customers receiving implementation assistance adopted AI twice as fast during their first five weeks, supporting increased investment in deployment expertise.
During further questioning from Jefferies, she clarified that bundled deployment services reduced reported subscription revenue growth by approximately 25 basis points in the third quarter, with an anticipated 50-basis-point impact in the fourth quarter. Management does not expect this arrangement to persist indefinitely.
NOW Expands AI Governance and Consumption Channels
McDermott positioned the Super Intelligence Control Tower as a central platform for monitoring, governing and securing enterprise AI agents.
President, chief product officer and COO Amit Zavery explained during an Evercore ISI exchange that customers are adopting governance capabilities before deploying AI broadly into production.
The expanded OpenAI partnership introduces ChatGPT access to ServiceNow workflows through Action Fabric. Zavery told Needham that third-party interfaces can generate consumption revenue because underlying workflow execution remains within ServiceNow.
ServiceNow Targets Productivity and Operating Efficiency
Mastantuono reported more than $1 billion in annualized internal AI productivity value, more than twice the level recorded at the end of 2025.
Responding to Bernstein, she explained that sales operations staffing had declined while quota-bearing sales personnel increased by double digits.
McDermott emphasized that automation is enabling ServiceNow to redirect resources toward customer-facing activities and AI development rather than expanding administrative staffing.
NOW Maintains Focus on Long-Term AI Expansion
Management remained confident that expanding production deployments and consumption-based pricing would support revenue growth beyond 2026.
McDermott emphasized faster customer implementation, while Mastantuono reiterated the company's objective for AI to represent 30% of ACV by 2030.
What NOW's Zacks Rank and Style Scores Indicate
ServiceNow currently carries a Zacks Rank #4 (Sell), indicating an unfavorable earnings-estimate revision outlook. Its Value Score of D, Growth Score of C and VGM Score of D reflect relatively weak characteristics across several investment styles.
The company's Momentum Score of B represents a comparatively stronger technical signal. However, Zacks' framework prioritizes earnings-estimate revisions over individual Style Scores, limiting the significance of favorable momentum when combined with a Sell ranking. The Zacks Rank remains subject to change as analysts revise their estimates following the reported results.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.