Software giant ServiceNow reported first-quarter results that exceeded expectations and raised its full-year guidance. However, the company noted that ongoing conflict in the Middle East negatively impacted subscription revenue growth, and coupled with lingering market skepticism about the prospects for enterprise software in the AI era, investor sentiment cooled. At the time of writing, ServiceNow's stock was down over 13% in after-hours trading on Wednesday.
The earnings report showed ServiceNow's first-quarter revenue increased 22% year-over-year to $3.77 billion, slightly above the analyst consensus estimate of $3.74 billion. By segment, subscription revenue grew 22% to $3.671 billion, while professional services and other revenue increased 18.5% to $99 million. The company reported a net income of $469 million. Adjusted earnings per share were $0.97, marginally beating the average analyst forecast of $0.96.
ServiceNow stated that first-quarter subscription revenue growth was "negatively impacted by approximately 75 basis points due to delayed signing of several large on-premise projects resulting from the ongoing conflict in the Middle East." Despite this, the company raised its fiscal 2026 subscription revenue guidance to a range of $15.74 billion to $15.78 billion, up from the previous forecast of $15.53 billion to $15.57 billion. For the second quarter, the company provided a subscription revenue guidance range of $3.815 billion to $3.820 billion, representing approximately 22.5% year-over-year growth and exceeding the analyst consensus estimate of $3.75 billion.
Chief Financial Officer Gina Mastantuono commented, "Our full-year guidance reflects a cautious assessment of the current geopolitical environment. Considering the ongoing conflict in the Middle East and its potential impact on deal timing, I have incorporated some additional conservative assumptions into the forecast." Mastantuono also noted that the company's AI product portfolio continues to perform excellently and is expected to achieve the target of exceeding $1 billion in revenue by 2026.
ServiceNow reported current remaining performance obligations of $12.64 billion for the quarter, surpassing market expectations of $12.56 billion. The company completed 16 new deals with an annual contract value exceeding $5 million, an increase of nearly 80% compared to the prior year. Additionally, the company repurchased approximately 20 million shares during the quarter, more than double the amount repurchased in the entirety of 2025.
ServiceNow is currently engaged in a period of intensive investment to position itself as an "AI control tower." The company announced an expansion of its partnership agreement with Google Cloud. Earlier this week, ServiceNow completed its $7.75 billion acquisition of cybersecurity startup Armis, a transaction initially expected to close in the second half of the year. This acquisition is projected to contribute approximately 125 basis points to full-year subscription revenue growth, but is expected to compress full-year operating margin by about 75 basis points.
Regarding its AI business, the number of customers with an annual contract value exceeding $1 million using its Now Assist AI assistant product grew by more than 130% year-over-year. Management views this as a significant indicator of accelerating monetization capabilities for AI on its platform. Chairman and Chief Executive Officer Bill McDermott stated in the earnings release that customers are adopting the company's platform as the "AI control tower for business transformation," and emphasized that AI business growth has "far exceeded the company's own expectations."
Despite executives consistently highlighting progress in the AI strategy, ServiceNow's stock has declined approximately 33% year-to-date. In a research note issued prior to the earnings release, Deutsche Bank analyst Brad Zelnick pointed out, "We believe that neither the results themselves nor management's commentary are likely to alleviate market concerns regarding medium-term AI disruption risks."
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