TLDR
- ServiceNow stock jumped 14.79% to $932.92 after strong Q1 2025 results.
- Subscription revenue rose 20% YoY to $3.005B; CRPO grew 22%.
- Operating margin reached 31%, beating guidance by 100 basis points.
- 72 large deals were signed, with nine over $5M in new annual contract value.
- 2025 guidance was raised; AI products saw rapid adoption.
ServiceNow Inc (NYSE: NOW) surged 14.79% to $932.92 after reporting record Q1 2025 earnings. The company posted 20% year-over-year growth in subscription revenue, totaling $3.005 billion in constant currency. Operating margin reached 31%, roughly 100 basis points above guidance. Management raised full-year subscription revenue guidance to between $12.64 billion and $12.68 billion, suggesting 18.5% to 19% annual growth.
Despite a negative year-to-date return of 12.06%, the Q1 beat and improved outlook fueled a swift rebound in investor sentiment. The stock now has a 1-year return of 24.92%, outperforming the S&P 500’s 7.55%.
Strong Deal Momentum, Especially in Enterprise
ServiceNow saw an acceleration in large enterprise wins. The company secured 72 deals with over $1 million in net new annual contract value (ACV), up from 63 in the prior year. Notably, nine deals exceeded $5 million. The number of customers generating over $5 million in ACV rose to 508.
Current Remaining Performance Obligations (CRPO) came in at $10.31 billion, up 22% year-over-year. Total RPO reached $22.1 billion, growing 25.5%, indicating a robust and expanding revenue pipeline.
AI Strategy Gaining Real Traction
AI continues to be a major growth lever for ServiceNow. Pro Plus deals—those tied to advanced AI solutions—more than quadrupled year over year. This validates the company’s investment in generative AI and automation tools across its workflow platforms.
Management emphasized that demand for AI-integrated solutions is coming from both new and existing customers. This adoption not only drives ACV but also deepens product engagement across enterprise accounts.
Strong Financials and Buyback Activity
ServiceNow reported a free cash flow margin of 48%, reflecting excellent operating leverage. Levered free cash flow for the trailing twelve months stood at $3.67 billion. Total cash and investments reached $10.9 billion, including $6.6 billion in cash.
The company repurchased approximately 316,000 shares during the quarter, signaling confidence in long-term value. Its debt-to-equity ratio remains conservative at 23.66%, allowing further flexibility for investment or shareholder returns.
Risks: Public Sector, Global Economy Could Slow Momentum
Despite the strong performance, management remains cautious about macroeconomic challenges. Budget tightening in the public sector could lead to slower decision-making, while global trade policies and geopolitical tensions may impact enterprise software investments.
To hedge against these risks, ServiceNow has taken a balanced approach by offering high-value AI capabilities and expanding its footprint in critical verticals like healthcare, financial services, and manufacturing.
Outlook
ServiceNow expects Q2 subscription revenue to reach between $3.030 billion and $3.035 billion, representing 19% to 19.5% year-over-year growth. The raised full-year guidance reflects a strong demand environment and growing confidence in the company’s AI-driven transformation strategy.
With strong customer metrics, margin expansion, and accelerating AI adoption, ServiceNow is poised for continued growth through 2025—despite broader economic uncertainties.
