TLDR
- ServiceNow (NOW) stock fell about 19% to $121.70 in Thursday premarket trading after a Q3 earnings miss.
- Adjusted EPS came in at $1.00, short of the $1.02 estimate, while revenue of $4.11 billion beat the $4.10 billion estimate.
- The company raised its 2026 AI annual contract value target to $1.7 billion, up 70% from the start of the year.
- Q4 subscription revenue guidance is $4.245 billion to $4.255 billion, and full-year free cash flow margin guidance rose to 36%.
- CEO Bill McDermott blamed the 2-cent miss on interest costs tied to recent acquisitions.
ServiceNow (NOW) stock was down 18.94% at $121.70 in premarket trading on Thursday. The drop followed third-quarter results that beat on revenue but missed on earnings.
Revenue came in at $4.11 billion, just above the $4.10 billion analyst estimate. That marks growth of 20.5% from a year earlier.
Adjusted earnings were $1.00 per share. Analysts had expected $1.02.
SERVICENOW $NOW Q3’26 EARNINGS HIGHLIGHTS
🔹 Subscription Revenue: $4.0B (Est. $3.98B) 🟢
🔹 Total Revenue: $4.1B (Est. $4.09B) 🟢
🔹 Adj. EPS: $1.00 (Est. $1.02) 🔴
🔹 cRPO: $13.65B (Est. $13.56B) 🟢; +20.5% YoYRaises FY26 Guide:
🔹 Subscription Revenue: $15.78B-$15.79B
🔹… pic.twitter.com/HJ5zDiHSjM— Wall St Engine (@wallstengine) October 28, 2026
Subscription revenue rose 21% to $3.99 billion. Remaining performance obligations grew 22% to $29.7 billion.
What Drove the Earnings Miss
CEO Bill McDermott said the 2-cent shortfall came from interest expenses tied to acquisitions completed in April. The filing backs that up. Interest expense hit $81 million in the quarter, compared with $6 million a year ago.
GAAP net income fell to $277 million, or $0.27 per share. That compares with $502 million, or $0.48 per share, in the same quarter last year.
McDermott said the operating margin grew by 150 basis points despite the deals. He pointed to subscription growth, backlog, margins and free cash flow as better measures of the business.
Non-GAAP operating margin was 32.5%, down from 33.5% a year ago. Free cash flow was $822 million, up from $592 million.
Guidance and AI Numbers
For the fourth quarter, ServiceNow expects subscription revenue of $4.245 billion to $4.255 billion. That implies growth of about 22.5% to 23%.
Full-year 2026 subscription revenue is expected between $15.78 billion and $15.79 billion. The company also lifted its free cash flow margin target by 100 basis points to 36%.
The AI annual contract value target rose to $1.7 billion. That is the second increase this year, up from $1 billion at the start of 2026.
McDermott said AI token use jumped 13-fold from a year ago. He told CNBC’s Jim Cramer that the company has no major limits on computing power, memory or data center space.
He called ServiceNow a “unicorn growth company.” He also cited its “Rule of 57,” which adds 21% subscription growth to a 36% free cash flow margin, and said the company aims to reach the Rule of 60.
Partnerships and Deals
ServiceNow announced an expanded partnership with OpenAI. It starts with a new ServiceNow plugin for ChatGPT.
Hewlett Packard Enterprise (HPE) picked the company to overhaul customer support for its Cloud and AI business. Stagwell will also move four service desks onto the ServiceNow platform.
The company launched the Control Tower Alliance with Anthropic, Amazon Web Services, Cisco, NVIDIA, OpenAI and others. McDermott also described a tie-up with NVIDIA, where ServiceNow sets governance rules and NVIDIA OpenShell enforces them.
The company had 19 deals above $5 million in net new annual contract value, up more than 135% from a year ago. It ended the quarter with 680 customers paying more than $5 million.
ServiceNow will present at four investor events, starting with the BMO conference on November 12. Next up are the RBC conference on November 17, the Wells Fargo summit on December 8 and the Barclays conference on December 9.
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