NOW Stock Declines Double Digits After Hours On Earnings Miss And AI Concerns

• The company guided for fourth-quarter current remaining performance obligations growth of 18.5%, below a Bloomberg estimate of 19%.
• On the company’s earnings call, CFO Gina Mastantuono said the expected slowdown in near-term contracted revenue growth was partly because some customer contract renewals were closed early in the third quarter.
• The company raised its full-year 2026 AI product annual contract value target to $1.7 billion from $1 billion at the start of the year. 

Shares of ServiceNow (NOW) fell 18% after-hours on Wednesday after the company’s third-quarter earnings fell below Wall Street estimates, largely due to its earlier acquisition of cybersecurity firm Armis, even as revenue topped forecasts and management raised its artificial intelligence targets.

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Earnings Miss Overshadows Revenue Beat

The software maker posted adjusted earnings of $1.00 per share, below the $1.17 analysts had expected, according to data from Fiscal AI. Total revenue reached $4.106 billion, up 20.5% year-over-year and ahead of an expected $4.13 billion, while subscription revenue rose 21% to $3.988 billion. Current remaining performance obligations, or portion of the company's total contracted, unrecognized revenue that is expected to be recognized over the next 12 months, grew 20.5% to $13.65 billion.

The company guided for fourth-quarter current remaining performance obligations growth of 18.5%, below a Bloomberg estimate of 19%. Near-term subscription growth rates would also be pressured, it added.

On the company’s earnings call, CFO Gina Mastantuono said the expected slowdown in near-term contracted revenue growth was partly because some customer contract renewals were closed early in the third quarter, and the company is temporarily providing extra deployment help on certain large AI deals. That help is currently counted as professional services revenue instead of subscription revenue, which creates a roughly 50-basis-point drag on fourth-quarter subscription growth, she added.

ServiceNow’s AI Bet

ServiceNow makes software that helps big companies run and connect their day-to-day operations, from IT support to customer service. With AI, it wants to become the main system companies use to put AI to work across the business while keeping it controlled and secure. Its recent acquisition of Armis was part of those efforts to ward off competition from improving AI capabilities.

The company on Wednesday raised its full-year 2026 AI product annual contract value target to $1.7 billion from $1 billion at the start of the year. “Customers are also rapidly increasing their use of agentic AI, with year-to-date consumption in production up more than 13x year-over-year,” Mastantuono said.

The company also raised its full-year free cash flow margin outlook by 100 basis points to 36% and expects full-year subscription revenue of $15.78 billion to $15.79 billion, or about 22.5% growth.

“The business has never been in better shape than it is right now,” CEO Bill McDermott said, while acknowledging that true top-line acceleration from AI products is still ahead as deployments mature in 2027.

How Did NOW Retail Traders React?

On Stocktwits, retail sentiment around NOW stock improved from 'bullish' to 'extremely bullish' territory over the past 24 hours, while message volume increased from 'normal' to 'extremely high' levels.

A Stocktwits user said that the software business is hard right now in the age of AI and predicts “it will only get worse” in a high interest environment.

https://stocktwits.com/jtru007/message/667599350

Another user, however, dismissed the selloff as an overreaction.

NOW stock has dropped 2% year-to-date. 

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