The numbers look good. But the vibes feel bad.
That’s the dilemma that haunts ServiceNow CEO Bill McDermott, with stock market investors continuing to punish the stock despite the company posting solid financial results.
ServiceNow announced its first quarter earnings yesterday, beating consensus Wall Street forecasts for revenue and exceeding the high end of its own guidance across almost every top-line and profitability metric. The company’s adjusted earnings per share came in exactly where consensus analyst estimates thought they would. McDermott raised full-year subscription revenue forecasts, and predicted that sales of the company’s AI products would blow through prior projections and end up at close to $1.5 billion for 2026, a figure 50% higher than his prior forecasts.
And yet the stock got crushed in after-hours trading. Investors drove the shares down as much as 14%, with the stock sliding further just after the opening bell on Thursday.
That comes on top of a brutal 45% decline over the past six months. Santa Clara–based ServiceNow has been one of the biggest losers of the so-called SaaSpocalypse, the idea that increasingly capable AI agents from the likes of Anthropic and OpenAI will mean customers will make fewer software purchases from traditional vendors, denting their growth prospects.
That narrative has been hard to shake, despite there being little empirical evidence for the thesis so far and the fact that plenty of economists, enterprise tech analysts, and tech CEOs—including AI boosters such as Nvidia CEO Jensen Huang—think the narrative is wrong.
On Wednesday, investors seem to have seized on one line in particular in ServiceNow’s earnings release as a rationale for continuing to dump the stock. That line was an acknowledgement that economic uncertainty caused by the Iran war has made it harder to close some customers, resulting in a 0.75% reduction in subscription sales growth compared with what the company thought it was going to be able to do in the quarter. This meant that the company’s “current remaining performance obligation” (or cRPO, which measures future sales that have been contracted for the current year but not yet delivered) wound up narrowly missing what analysts had expected.
But investors ignored that overall subscription revenue had still expanded at 22% to $3.77 billion in the quarter, a solid figure that beat consensus forecasts and represented an acceleration in growth from prior quarters. And while it remains far from clear how long tumult in the Middle East will last, that drag on growth is likely to vanish at some point in the coming quarters.
Overall, the company said it made $1.012 billion in adjusted net income, or 97 cents per share, which was in line with consensus forecasts from Wall Street analysts.
