ServiceNow (NOW) Down 6.4% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for ServiceNow (NOW). Shares have lost about 6.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is ServiceNow due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the latest earnings report in order to get a better handle on the important catalysts.

NOW Q4 Earnings Beat Estimates, Revenues Rise Y/Y

ServiceNow reported fourth-quarter 2025 adjusted earnings of 92 cents per share, which beat the Zacks Consensus Estimate by 5.75% and increased 26% year over year. 

Revenues of $3.57 billion beat the consensus mark by 1.25% and increased 20.7% year over year. At constant currency (cc), revenues increased 19.5% year over year to $3.51 billion.

NOW’s Q4 Top-Line Details

Subscription revenues improved 20.9% year over year, on a reported basis, to $3.47 billion. On a cc basis, revenues increased 19.5% to $3.41 billion. Professional services and other revenues increased 12.1% year over year on a reported basis to $102 million and 11% on a cc basis to $101 million.

At the end of the fourth quarter, the current remaining performance obligations (cRPO) were $12.85 billion, up 25% year over year on a reported basis and 21% on a cc basis. Remaining performance obligations, on a cc basis, rose 22.5% year over year to $28.2 billion.

Expanding Clientele Aids NOW’s Top-Line Growth

The company had 244 transactions of more than $1 million in net new annual contract value (ACV) in the fourth quarter of 2025, representing nearly 40% year-over-year growth. ServiceNow ended the reported quarter with 603 customers with more than $5 million in ACV, representing approximately 20% year-over-year growth.

NOW’s quarterly results benefited from the strong traction of its AI-powered products like Now Assist, Workflow Data Fabric, Raptor and CPQ. RaptorDB Pro more than tripled net new ACV (NNACV) year over year in the fourth quarter of 2025, including 13 one-million-plus deals. Workflow Data Fabric was in 16 of NOW’s top 20 fourth-quarter deals, and the company has seen attach rates increase in every quarter of 2025. Overall, the number of workflows and the number of transactions each grew more than 33%, from $60 billion to $80 billion and from $4.8 trillion to $6.4 trillion, respectively.

ServiceNow saw 244 deals greater than $1 million in NNACV and had 7 deals greater than $10 million in NNACV. CRM NNACV growth accelerated sequentially to close its largest quarter in history. ServiceNow’s AI platform is gaining traction, with monthly active users growing 25%. Now Assist NNACV outperformed expectations in the reported quarter and surpassed $600 million in ACV. Now Assist NNACV more than doubled year over year and had 35 deals over $1 million in the reported quarter. AI Control Tower deal volume nearly tripled sequentially.

NOW’s Operating Details

In the fourth quarter of 2025, non-GAAP gross margin was 80.3%, down 160 basis points (bps) on a year-over-year basis. Subscription gross margin was 82.7%, contracted 160 bps year over year. Professional services and other gross loss were $2 million against gross income of $7 million reported in the year-ago quarter.
As a percentage of revenues, operating expenses decreased 180 bps on a year-over-year basis to 64.2%.

ServiceNow’s non-GAAP operating margin expanded 140 bps on a year-over-year basis to 30.9%.

NOW’s Balance Sheet & Cash Flow

As of Dec. 31, 2025, NOW had cash and cash equivalents and marketable securities of $6.28 billion compared with $5.41 billion as of Sept. 30, 2025.

During the reported quarter, cash from operations was $2.24 billion compared with $813 million in the previous quarter.

ServiceNow generated a free cash flow of $2.03 billion in the reported quarter, up from $592 million reported in the prior quarter. Free cash flow margin was 57% compared with 47.5% in the year-ago quarter.

NOW repurchased 3.6 million shares in the fourth quarter of 2025. The company announced a new share repurchase authorization worth $5 billion and plans to launch a $2 billion accelerated share repurchase program.

NOW’s Offers Positive 2026 Guidance

For 2026, NOW expects subscription revenues to be $15.53-$15.57 billion, which suggests a rise between 20.5% and 21% from 2025 on a GAAP basis and between 19.5% and 20% on a cc basis. The guidance includes 1% contribution from Moveworks.

ServiceNow expects the non-GAAP subscription gross margin to be 82% and the non-GAAP operating margin to be 32%. Moreover, the free cash flow margin is expected to be 36%, up 100 bps year over year.

For the first quarter of 2026, subscription revenues are projected between $3.65 billion and $3.67 billion, suggesting year-over-year growth of 21.5% on a GAAP basis and in the 18.5% to 19% on a cc basis. This includes approximately 150 bps headwind from a mix shift of self-hosted revenues to hosted revenues, partially driven by strong adoption of NOW’s hyperscaler offerings. Moveworks is expected to contribute 1% to revenues.

ServiceNow expects the non-GAAP operating margin to be 31.5% in the current quarter, with cRPO growth projected at 22.5% on a GAAP basis and 20% on a cc basis.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a upward trend in fresh estimates.

The consensus estimate has shifted 5.32% due to these changes.

VGM Scores

Currently, ServiceNow has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock has a score of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Interestingly, ServiceNow has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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This article originally published on Zacks Investment Research (zacks.com).

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