ServiceNow shares fall a record 25% after its bookings outlook misses

ServiceNow shares fell as much as 25% to $112.37 after markets opened in New York on Thursday. It was the biggest intraday drop since the company went public in 2012, Brody Ford reported for Bloomberg. The stock was on course for its worst day on record, according to Dow Jones Market Data cited by MarketWatch.

The fall followed ServiceNow’s third-quarter results, released after the market closed on Wednesday. The shares had dropped 14% in extended trading that evening, Bloomberg reported.

“This was a little bit uncharacteristic for ServiceNow standards, just in terms of the lack of upside,” Citi analyst Tyler Radke told CNBC.

What ServiceNow reported

Subscription revenue rose 21% to $3.988bn in the quarter to 30 September. Analysts had expected $3.98bn, according to Bloomberg. Total revenue grew 20.5% to $4.106bn, against a $4.10bn estimate from analysts polled by LSEG, CNBC reported.

Adjusted earnings were $1.00 a share. That compares with analyst estimates of $1.03, according to Bloomberg, and $1.02, according to LSEG. Net income under standard accounting rules (GAAP) fell to $277m, from $502m a year earlier.

Current remaining performance obligations (cRPO) rose 20.5% to $13.65bn. The measure covers contracted revenue that ServiceNow expects to recognise over the next 12 months. Analysts had expected $13.56bn, MarketWatch reported.

The outlook

For the fourth quarter, ServiceNow forecast subscription revenue of $4.245bn to $4.255bn, growth of 22.5% to 23%. Bloomberg reported that this was about in line with analysts’ estimates.

The company expects cRPO growth of 18.5% in the December quarter. Analysts had projected 19% on average, according to data compiled by Bloomberg.

ServiceNow raised its full-year subscription revenue forecast to $15.78bn to $15.79bn. It also raised its free cash flow margin target by one percentage point to 36%.

The company raised its target for annual contract value from AI products to $1.7bn by the end of 2026. Three months ago the target was $1.5bn, and at the start of the year it was $1bn.

“Customers are also rapidly increasing their use of agentic AI, with year-to-date consumption in production up more than 13x year-over-year,” chief financial officer Gina Mastantuono said in the results statement.

What analysts said

Analysts said the cRPO outlook was the biggest issue in the report, Nora Redmond and Hannah Pedone reported for MarketWatch. William Blair analyst Arjun Bhatia wrote that early contract renewals likely lifted the September quarter. That came at the expense of the December quarter, he wrote.

Bhatia also cited public-sector customers moving to on-premises deals. Those are recognised as revenue upfront, not as cRPO. He added that more deals include termination-for-convenience clauses, which let customers opt out.

BMO analyst Keith Bachman wrote that even if the outlook is conservative, it “still points to deceleration”. Derrick Wood of TD Cowen wrote that there are “lots of mechanical caveats to help explain away” aspects of the forecast.

“But we think it could re-raise AI disruption fears,” Wood wrote.

Analysts at JPMorgan, led by Samik Chatterjee, called the results “a bit noisy”. They wrote that the gap between cRPO and revenue growth is likely to reverse over time.

Radke told CNBC that investors had not yet seen a payoff from ServiceNow’s new forward-deployed engineering team. The team works inside customers’ businesses to build AI tools.

“I think you got to wait until next year to really see that inflection,” Radke said.

Before the results

The stock had gained 36% in the three months before the report, Bloomberg reported. In May, ServiceNow lined up a $4bn bond sale to refinance its Armis acquisition debt. On Thursday, the day of the share fall, Nasdaq futures fell after results from Alphabet and Microsoft.

On the day of the results, ServiceNow also expanded its partnership with OpenAI. It launched a Control Tower Alliance for AI governance too. Its founding members include Anthropic, Amazon Web Services, Nvidia, Okta and OpenAI.

CNBC reported that the results did little to overturn “SaaSpocalypse” fears, the concern that AI will upend traditional software business models. In September, Salesforce chief executive Marc Benioff dismissed the SaaSpocalypse as “crazy nonsense”.

“This was more than another beat-and-raise quarter for ServiceNow, this was the inflection point for ServiceNow as the Super Intelligence Control Tower,” chief executive Bill McDermott said in the results statement.