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.
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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 (2.3% 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 $113.8 billion
While we enjoy listening to the management’s commentary, our favorite part of earnings calls is the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our top 5 analyst questions from ServiceNow’s Q3 earnings call
- Brad Zelnick (Deutsche Bank): Asked about the shift towards outcome-based pricing for AI solutions; CEO Bill McDermott highlighted the hybrid model’s flexibility and said customers prefer predictability, while Mastantuono noted no current push from customers for outcome pricing.
- Alex Zukin (Wolfe Research): Questioned the impact of investments in delivery expertise on near-term guidance; Mastantuono clarified that shifting some revenue to professional services affects reported subscription growth but should structurally accelerate long-term revenue.
- Sanjit Singh (Morgan Stanley): Inquired when AI-driven momentum would translate into broader top-line acceleration; McDermott indicated that increased AI adoption and token consumption would drive growth, with meaningful impact expected in future periods as deployments scale.
- Samik Chatterjee (JPMorgan): Asked for metrics on the effectiveness of investing in customer deployment teams; Mastantuono stated that customers with support adopt AI twice as fast and demonstrate higher product usage, justifying continued investment in these teams.
- Peter Weed (Bernstein): Sought clarification on internal productivity gains; Mastantuono explained that AI-driven efficiency has reduced the need for operational headcount, enabling more investment in sales and engineering roles without increasing total staff.
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 $105.18, down from $150.21 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).
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