Third-quarter revenue rose 20.5% to $4.11 billion and the company raised its AI target. Adjusted earnings of $1.00 a share were 2 cents below forecasts. Its fourth-quarter guidance implies subscription growth of 22.5% to 23%, up from 21%.
ServiceNow told investors its business would grow faster next quarter than it did this one. Investors marked the stock down by nearly a fifth anyway.
The software company reported third-quarter revenue of $4.106 billion, up 20.5%. Consensus figures differed: FMP's estimate of about $4.095 billion implies a small beat, while ChartMill's $4.136 billion implies a miss. Subscription revenue rose 21% to $3.988 billion. Current remaining performance obligations, the contracted revenue due over the next 12 months, rose 20.5% to $13.65 billion, and total remaining performance obligations rose 22% to $29.7 billion.
Adjusted earnings were $1.00 a share, below the $1.02 expected. The adjusted operating margin was 32.5% and free cash flow was $822 million.
A forecast that accelerates
For the fourth quarter, ServiceNow guided subscription revenue to $4.245 billion to $4.255 billion, growth of 22.5% to 23%. That is faster than the 21% it just reported. For the full year it expects subscription revenue of $15.78 billion to $15.79 billion.
It also raised its target for annual contract value from AI products to $1.7 billion and signed 19 deals worth more than $5 million in annual contract value, up 135%. ServiceNow's McDermott said the AI business would see "true acceleration" next year.
The reaction
The shares had already fallen 3% in Wednesday's regular session to $150.13. In extended trading they were indicated near $122.54 early Thursday, down about 18%.
A decline of that size on a report with accelerating subscription guidance and revenue near forecasts suggests investors were positioned for more. The earnings miss was small, but for a stock valued on growth, the market may have wanted a larger raise, a bigger AI number or both.
Overreaction or reset?
The overreaction case: revenue was near forecasts, contracted revenue grew in line with sales, guidance points to faster subscription growth, AI deals are growing quickly, and the company remains highly profitable with strong cash flow.
The reset case: earnings missed, the stock was priced for upside that did not come, and in a week when investors are questioning the payback on AI spending, software companies that sell AI tools may face a higher bar to prove that new products add to growth.
What to watch
Commentary from the earnings call on AI pricing and deal sizes, fourth-quarter subscription revenue against the 22.5% to 23% guidance, and whether other enterprise software companies report similar pressure on valuations.