Key Highlights

  • NOW shares fell about 19% pre-market to $122.08, from $150.13 prior close.
  • Q3 adjusted EPS of $1.00 missed the roughly $1.02 estimate.
  • Q4 current RPO growth is guided to 18.5%, down from 21%.
  • Subscription revenue of $3.988 billion rose 20.5% in constant currency.
  • The AI contract value target was raised to $1.7 billion.

Beat on Revenue, Miss on EPS and Outlook

ServiceNow, Inc. (NYSE:NOW) shares fell sharply in pre-market trading after third-quarter results that beat on revenue but missed on adjusted earnings per share, ending a six-quarter streak of beats. Adjusted EPS of $1.00 compared with about $1.02 expected, while revenue of about $4.1 billion was marginally ahead.

Subscription revenue was $3.988 billion, up 20.5% in constant currency and 50 basis points above the top of guidance. Current remaining performance obligations grew 21%, operating margin was 32.5%, free cash flow margin was 20%, and total remaining performance obligations reached $29.7 billion, up 22.5%. The renewal rate was 98%.

The pressure came from the fourth-quarter guide. Current RPO growth is guided to 18.5% in constant currency, down from about 21% in the third quarter and below the roughly 19% market expectation. Management pointed to early renewals pulled into the third quarter, a higher on-premises mix from public sector demand, which costs about 25 basis points, and backlog excluded from the measure, about 50 basis points.

AI Metrics and a Margin Trade-Off

AI momentum accelerated. Net new annual contract value from AI grew 65% year on year, AI deals above $1 million grew 4.5 times, and agentic AI consumption in production is up 13 times year to date. The year-end AI contract value target was raised for a second time, to $1.7 billion from $1.5 billion, and management said AI is on track to reach 30% of contract value by 2030.

Only part of the third-quarter beat was passed through to guidance because of a decision to bundle delivery expertise with large AI deals. Under the accounting, that work is booked as professional services rather than subscription revenue, costing about 25 basis points in the third quarter and about 50 in the fourth. Management expects it to be temporary.

Guidance and Valuation

Full-year 2026 subscription revenue guidance was raised by $15 million at the midpoint to $15.785 billion, and the free cash flow margin target moved to 36% from 35% on lower capital expenditure. Fourth-quarter subscription revenue is guided to $4.245 billion to $4.255 billion, with operating margin of 31.5%.

Before the move, ServiceNow had a market capitalisation of about $155 billion, a trailing price-to-earnings ratio of 108 and a forward ratio of 31.7. The 52-week range is $81.24 to $192.97. Several research firms cut price targets, and technology stocks were weaker after results from Alphabet (NASDAQ:GOOG), with the sector fund down about 1.1% pre-market.

What Investors Will Weigh Next

The reaction shows how closely the market tracks backlog growth in this stock. Whether the early-renewal and public sector effects prove temporary, and how AI contract value converts into subscription revenue through 2027, will frame the next quarters.