Enterprise workflow automation company ServiceNow (NYSE: NOW) met Wall Street’s revenue expectations in Q3 2026, with sales up 20.5% year on year to $4.11 billion. Its non-GAAP profit of $1 per share was 2% below analysts’ consensus estimates.
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ServiceNow (NOW) Q3 2026 highlights:
- Revenue $4.11 billion vs S&P analysts’ estimates of $4.10 billion (20.5% year-on-year growth, in line)
- Adjusted EPS $1 vs S&P analysts’ expectations of $1.02 (2% miss)
- Adjusted operating income $1.34 billion vs analyst estimates of $1.28 billion (32.6% margin, 4.8% beat)
- Operating margin 9.4%, down from 16.8% in the same quarter last year
- Annual recurring revenue $15.95 billion vs analyst estimates of $15.92 billion (20.9% year-on-year growth, in line)
- Billings $3.64 billion at quarter end, up 23.2% year on year
- Market capitalization $155.2 billion
StockStory’s take
ServiceNow’s third quarter results were met with a significant negative market reaction, despite revenue growth that was in line with Wall Street expectations. Management attributed the results primarily to increased investments in accelerating artificial intelligence (AI) adoption and changes in the business model, which led to a notable decline in operating margins. President and CFO Gina Mastantuono explained that the company made a “strategic decision to invest in [customer] success by including delivery expertise with our platform solutions to accelerate AI deployments for select large deals.” This shift contributed to lower reported subscription revenue and higher operating expenses, impacting non-GAAP earnings per share.
Looking ahead, ServiceNow’s guidance is shaped by the company’s continued emphasis on scaling enterprise AI adoption and capitalizing on new monetization paths. Management expects ongoing investments in deployment teams and product innovation to drive long-term growth, particularly as customers move from AI experimentation to broad production use. CEO Bill McDermott noted, “We’re helping customers operationalize AI across the enterprise, turning innovation into measurable business outcomes and ROI.” However, Mastantuono cautioned that near-term margin pressures could persist as the company focuses on rapid implementation and customer enablement.
Key insights from management’s remarks
Management attributed quarterly results to rapid AI adoption, expanded product deployment, and a deliberate shift toward hybrid consumption and subscription models, which contributed to margin compression and changes in revenue recognition.
- AI monetization accelerating: ServiceNow saw a sharp increase in AI-related annual contract value (ACV), with AI net new ACV growing 65% year-over-year. The number of $1 million-plus AI deals grew 4.5 times, and customers consuming five or more AI products increased 8.5 times, reflecting widespread enterprise AI adoption.
- Hybrid pricing and consumption: The company is balancing traditional seat-based subscription pricing with usage-based models, especially for AI features. Management highlighted that this hybrid model allows customers budgeting predictability while enabling ServiceNow to capture increased value as enterprises scale usage.
- Delivery expertise investment: ServiceNow is investing in deployment teams to accelerate AI implementation for large customers. Mastantuono reported that customers receiving this support “saw AI adoption progress twice as fast,” although these costs are currently recognized as professional services rather than subscription revenue, impacting near-term profitability.
- Internal productivity gains: By using its own AI products, ServiceNow has generated over $1 billion in annualized internal efficiency gains. This has enabled the company to maintain steady overall headcount while reallocating hiring to high-impact quota-bearing and engineering roles, supporting both growth and operational efficiency.
- Security and governance differentiation: The launch of the Super Intelligence Control Tower and expanded partnerships, such as with OpenAI, have positioned ServiceNow as a leader in enterprise AI governance and cybersecurity. These new offerings have attracted high-profile customers and driven strong growth in security and risk solutions, with management citing ServiceNow as “the fastest-growing cybersecurity company at scale.”
Drivers of future performance
ServiceNow’s outlook is driven by its commitment to expanding enterprise AI adoption, investing in rapid customer deployment, and enhancing product differentiation in security and workflow automation.
- Expanded AI offerings: Management believes that increasing adoption of agentic AI products, including EmployeeWorks and Action Fabric, will drive future revenue growth as enterprises transition from initial pilots to broader deployment across business functions.
- Continued investment in delivery: ServiceNow plans to maintain elevated investment in deployment expertise to accelerate customer time-to-value, with Mastantuono stating, “deployment times are rapidly improving,” but also noting that these investments may pressure margins until AI adoption becomes more automated and scalable.
- Security and governance focus: The company expects its Super Intelligence Control Tower and security portfolio to be major growth drivers, as enterprises seek comprehensive governance, orchestration, and risk management solutions to support complex AI environments. Management cited growing demand from public sector and global customers as a catalyst for this expansion.
Catalysts in upcoming quarters
In upcoming quarters, our analysts will be watching (1) the pace of customer adoption and monetization of ServiceNow’s newest AI-driven workflow and security platforms, (2) the impact of ongoing investments in deployment teams on both revenue recognition and operating margins, and (3) progress in expanding large enterprise and public sector deals, especially within security and governance. Execution in scaling product adoption and achieving faster deployment cycles will also be critical markers of success.
ServiceNow currently trades at $121.48, down from $150.21 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).
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