NOW Stock Tumbles After Market Over Bleak Revenue Guidance; CEO Flags Middle-East Deal Slowdown

• ServiceNow reported earnings of $0.97 a share, in-line with expectations.
• Armis acquisition may cause 200 basis point headwind to 2026 cash flow margin.
• Flags possible delayed deals in the Middle-East due to the Iran war.

ServiceNow (NOW) stock tumbled 13% after market after the firm’s subscription revenue guidance failed to impress Wall Street, while a slowdown in deals in the Middle-East due to the U.S.-Iran war dented sentiment. 

NOW posted Q1 adjusted earnings of $0.97 a share, matching Wall Street estimates, according to Fiscal.ai. Revenue for the quarter of $3.77 billion, up 22% from the same quarter last year, came in marginally above analyst expectations of $3.75 billion.

The company forecast subscription revenues, which account for 97% of total revenue, for Q2 to be between $3.81 billion and $3.82 billion, lower compared to analyst estimates of $3.75 billion. NOW’s 2026 subscription revenue estimates place it between $15.7 billion and $15.8 billion, mildly above Wall Street expectations of $15.6 billion.

This comes at a time when many legacy software developer firms are squirming under the pressure that AI could steal enterprise clients from them. 

The company also flagged a 75 basis point (bps) headwind in revenue due to delayed deals in the Middle-East. The company's chief operating officer Amit Zavery told Reuters that those (Middle-East) deals are expected to close throughout the year. "We don't know ​when these conflicts will get sorted out, but we continue to work ​with these customers," he said.

AI Focus

ServiceNow closed 16 large-scale deals with a net new annual contract value (ACV) exceeding $5 million—a nearly 80% increase compared to the previous year. The company’s "Now Assist" GenAI products continue to see rapid traction, with the number of customers contributing over $1 million in ACV, growing by 130% year-over-year (YoY).

"Our AI growth has far surpassed our own expectations. Customers are choosing ServiceNow as their AI control tower to orchestrate work across the enterprise, integrating any model, cloud, or data source into a single pane of glass," said Chairman and CEO Bill McDermott. 

Problems With Armis Acquisition

The firm’s acquisition of cybersecurity firm Armis, completed on April 20,  is also expected to create headwinds of 25 bps in subscription gross margin, 75 bps in operating margin, and 200 bps in free cash flow margin in full-year 2026.

Retail Investor Take

Sentiment on Stocktwits around NOW stock was ‘extremely bullish’ with ‘extremely high’ message volumes. 

One user on Stocktwits showed confidence in the software firms, saying the CEO cannot replace everything with AI. 

https://stocktwits.com/NoMarketManipulation/message/651081442

Another user mirrored analyst concerns of slower revenue growth for software firms. 

https://stocktwits.com/sister/message/651080772

The stock dropped 33% year-to-date. 

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