Key takeaways
- ServiceNow stock plunged nearly 18% after disappointing Q3 earnings
- Quarterly revenue climbed 20.5% to $4.1 billion, beating Wall Street expectations
- ServiceNow raised its 2026 AI contract value target to $1.7 billion, but concerns about slowing future growth overshadowed its strong AI momentum
ServiceNow shares plunged nearly 18% in after-hours trading on Wednesday after the enterprise software company reported mixed third-quarter earnings and issued disappointing subscription growth guidance. The sharp selloff came despite stronger-than-expected revenue and an increased artificial intelligence revenue target.
The stock fell to approximately $122.90 in extended trading, down from Wednesday's closing price of $150.13, as investors reacted to concerns about slowing future contract growth.
ServiceNow Earnings Beat Revenue Estimates but Miss Profit Expectations
ServiceNow reported third-quarter revenue of $4.106 billion, which is a 20.5% increase from the previous year and exceeding Wall Street's $4.095 billion forecast. Subscription revenue climbed 21% to $3.988 billion, while the company's adjusted operating margin reached 32.5%. This also comfortably exceeded expectations.
However, adjusted earnings per share came in at $1.00, missing analysts' expectations of $1.02. The earnings shortfall was partly attributed to costs associated with ServiceNow's acquisition strategy.
Press release from ServiceNow
Despite the earnings miss, the company's current remaining performance obligations (cRPO), a measure of contracted revenue expected over the next 12 months, increased 20.5% to $13.65 billion.
Weak Subscription Growth Outlook Sends ServiceNow Stock Lower
The biggest concern for investors was ServiceNow's fourth-quarter outlook for cRPO growth. Management projected growth of approximately 18.5%, below analysts' expectations of 19.8%. This raised concerns that future subscription revenue expansion could slow.
Nevertheless, ServiceNow expects fourth-quarter subscription revenue of between $4.245 billion and $4.255 billion, which represents year-over-year growth of approximately 22.5% to 23%. The company also increased its full-year subscription revenue forecast to between $15.78 billion and $15.79 billion.
ServiceNow Raises AI Revenue Target Despite Stock Selloff
Despite the disappointing market reaction, ServiceNow pointed out accelerating demand for its artificial intelligence products. The company raised its 2026 AI annual contract value target to $1.7 billion, representing a 70% increase from its target at the beginning of the year.
ServiceNow also announced an expanded partnership with OpenAI to strengthen its ambitions in enterprise AI automation.
Meanwhile, acquisitions involving Moveworks, Armis and Veza have expanded the company's capabilities in AI and cybersecurity, although these investments have added some financial pressure.
For ServiceNow stock, the next major test will be whether accelerating AI demand can offset slower contract growth and justify the company's valuation.
