ServiceNow lost more than a quarter of its value after guiding to slower growth in contracted revenue, even as subscription guidance accelerated. Fortinet fell 22% after lowering its full-year service revenue outlook while raising its revenue and billings forecasts. Security and software peers fell 3% to 6%.
Before the open, the two software reports that disappointed investors on Wednesday night were indicated down 18% and 25%. Once the regular session began, one got worse.
ServiceNow fell about 26% to about $110.80 in early afternoon, from Wednesday's close of $150.13. CNBC reported it was headed for its worst day ever. Fortinet was down about 22% at about $135.10, from $174.08, slightly better than its overnight indication.
ServiceNow: guidance that accelerates, a stock that didn't
ServiceNow's third quarter was mostly in line with forecasts. Revenue rose 20.5% to $4.106 billion, in line with the $4.10 billion analysts polled by LSEG expected and slightly above FactSet's $4.095 billion consensus. Adjusted earnings of $1.00 a share were 2 cents short. Its fourth-quarter guidance implies subscription growth of 22.5% to 23%, faster than the 21% it just reported. But it forecast growth in current remaining performance obligations, the contracted revenue due over the next 12 months, of 18.5% in the fourth quarter, down from 20.5% in the third.
The problem is that investors expected more. The fourth-quarter subscription forecast was roughly in line with estimates, Bloomberg reported, at a time when a stock priced for growth needed a beat. Net new annual contract value from AI products rose 65%, but analysts at Citi said the company's investment in engineers deployed at customer sites may not show a payoff until next year. Analysts at William Blair and BMO singled out the slower cRPO forecast, MarketWatch reported, and some pointed to changes in how the company measures the metric, which can make growth comparisons harder to read.
Fortinet: one forecast down, others up
Fortinet raised its full-year billings forecast for the third time this year and also raised its revenue, operating margin and earnings forecasts, and revenue and earnings beat estimates. The overnight focus was its adjusted gross margin, which slipped to 79.6% from 81.6% a year earlier.
The one forecast it cut was service revenue. Fortinet lowered its full-year forecast for service revenue to $5.15 billion to $5.17 billion, from $5.18 billion to $5.22 billion, below the roughly $5.2 billion analysts had expected, according to Bloomberg data. Service revenue comes from subscriptions and support contracts, the recurring part of the business. A lower service outlook alongside a lower gross margin suggests the mix may be shifting toward products, which grew 37% in the quarter.
The group
Peers fell too, though by much less. CrowdStrike was down about 3.2%, Zscaler about 4.5%, Palo Alto Networks about 4.8%, Cloudflare about 5.8% and Twilio about 6.3%. That points to some sector-wide repricing on top of company-specific disappointment, on a day when Alphabet's results pushed investors to question spending across the AI chain.
Reset or overreaction?
The reset case: both companies are priced on growth, both gave investors a reason to doubt the next leg, and software valuations are being tested as buyers ask whether AI products add revenue or replace it.
The overreaction case: ServiceNow's revenue met forecasts and its subscription guidance accelerates; Fortinet raised billings again, and the service-revenue trim is less than 1% at the midpoint. Losses of a quarter of market value may exceed what changed in the numbers.
What to watch
ServiceNow's fourth-quarter subscription revenue against its 22.5% to 23% growth guidance and cRPO against its 18.5% forecast, any further detail on how it reports remaining performance obligations, Fortinet's gross margin and service revenue next quarter, and whether peers' upcoming reports show the same pressure.