ServiceNow Earnings Call Highlights AI-Fueled Growth Surge

ServiceNow Inc ((NOW)) has held its Q4 earnings call. Read on for the main highlights of the call.

ServiceNow Caps 2025 With Big Beats, AI Momentum and Confident Outlook

ServiceNow’s latest earnings call struck an emphatically upbeat tone, as management detailed a strong finish to 2025 marked by beats across revenue, RPO/CRPO, margins, and free cash flow. Executives leaned heavily into the theme of AI-driven growth, particularly around the Now Assist platform and expanding workflows, while acknowledging manageable headwinds tied to hyperscaler costs, AI inference spending, and near-term acquisition dilution. Overall, the narrative was one of durable, high-quality growth with expanding profitability and substantial capital return, with management positioning 2026 as another year of acceleration rather than consolidation.

Subscription Revenue Growth and Top-Line Beat

ServiceNow’s core subscription engine remained the star of the quarter. Q4 subscription revenues hit $3.466 billion, up 19.5% year over year in constant currency and running roughly 150 basis points above the high end of guidance, with management also highlighting a 21% growth figure in their commentary. This beat underscores continued strong demand for the platform even as it grows off a much larger base, reinforcing the company’s reputation as one of the more durable large-cap growth names in enterprise software.

RPO and CRPO Signal Strong Future Demand

The company’s backlog metrics backed up the robust revenue picture. Remaining performance obligations (RPO) ended the quarter at about $28.2 billion, up around 22.5% in constant currency. Current RPO (CRPO), a closer proxy for near-term revenue, reached $12.85 billion, growing about 21% in constant currency and coming in roughly 200 basis points ahead of guidance. Management also pointed to CRPO growth of 25% (21% in constant currency), about 2 points above expectations, suggesting that customers are not only renewing but expanding commitments at a healthy pace.

Margin Expansion and Exceptional Free Cash Flow

Profitability was another bright spot. Q4 non-GAAP operating margin came in at 31%, about 100 basis points above guidance, while full-year 2025 operating margin also reached 31%, up 150 basis points year over year. The cash engine was even more impressive: full-year free cash flow rose 34% to $4.6 billion, with a full-year free cash flow margin of 35%, up 350 basis points from the prior year. Q4 free cash flow margin stood out at a striking 57%, nearly 950 basis points higher year over year, giving the company ample flexibility to invest, acquire, and return capital.

Large Deal Activity Underscores Enterprise Traction

Large enterprise deals remained a core driver of growth. ServiceNow closed 244 deals above $1 million in net new ACV in Q4, including multiple new logo wins and seven deals exceeding $10 million. The high end of the customer base continues to expand, with 603 customers now generating more than $5 million in ACV and the number of customers contributing $20 million or more rising over 30% year over year. This growing concentration of high-value relationships points to deepening strategic adoption of the platform across large enterprises.

Now Assist and AI Monetization Accelerate

AI was central to management’s growth story, with Now Assist in the spotlight. The AI offering surpassed $600 million in ACV, and Now Assist net new ACV more than doubled year over year in Q4. The company nearly tripled the number of Now Assist deals above $1 million quarter over quarter, and the number of customers spending more than $1 million on Now Assist grew over 40%. With a clear line of sight to more than $1 billion in Now Assist ACV targeted for 2026, ServiceNow is increasingly demonstrating that AI is not just a product feature but a significant revenue driver.

Usage and Workflow Expansion Highlight Platform Stickiness

Underlying platform metrics reinforced the narrative of growing engagement and scale. Monthly active users climbed roughly 25%, while the number of workflows running on the platform increased more than 33%, from about 60 billion to roughly 80 billion. Transactions processed surged by a similar margin, rising from about 4.8 trillion to 6.4 trillion. These figures indicate that customers are embedding ServiceNow more deeply into their operations, using the platform to automate a wider range of processes and workloads.

Broad-Based Industry and Product Strength

Growth was not confined to a single sector or product line. Transportation and logistics net new ACV rose more than 80% year over year, business and consumer services climbed over 70%, and financial services grew more than 40%. On the product side, IT Operations Management (ITOM) net new ACV expanded nearly 50% year over year, while security and risk saw roughly 40% growth in net new ACV. Emerging offerings such as workflow data fabric, the Raptor initiative, CPQ, and creator workflows all outperformed, underscoring the breadth of ServiceNow’s platform-led strategy.

Strategic Partnerships and M&A Extend the AI Platform

ServiceNow continued to build out its AI and workflow ecosystem through partnerships and acquisitions. The company expanded collaborations with Microsoft, OpenAI, Anthropic, and NTT Data to drive AI-native workflows and deepen interoperability across clouds and tools. On the M&A front, management highlighted pending acquisitions such as Armis and VESA/Vezza, aimed at adding visibility, identity, and governance layers for agentic AI and expanding the company’s security addressable market. These moves are designed to shore up the platform’s capabilities in high-value security and AI domains, even as they introduce some near-term integration and margin noise.

Capital Allocation: Aggressive Buybacks and Strong Cash Position

The company paired its strong financial performance with an assertive capital return agenda. The board authorized an additional $5 billion share repurchase program, including an immediate $2 billion accelerated share repurchase. During Q4, ServiceNow repurchased roughly 3.6 million shares and ended the year with more than $10 billion in cash and investments. This balance sheet strength, combined with expanding cash generation, signals management confidence in the long-term trajectory and provides a buffer against market or macro volatility.

Gross Margin Headwinds from Hyperscaler and AI Costs

Management did flag some near-term pressure on gross margins, driven by increased data center and public cloud investments and a continued shift toward hyperscaler capacity, which currently carries slightly lower gross margins. In addition, large language model inference and API costs are acting as a headwind. However, executives emphasized that these AI-related costs are largely manageable and are being offset by operating expense efficiencies, suggesting that investments in scale and performance are intentional and tied to long-term growth in AI-enabled workloads.

Mix Shift and Near-Term Revenue Dynamics

The company also pointed to a short-term mix shift that will weigh modestly on Q1 2026 results. A roughly 1.5‑point headwind in Q1 guidance stems from the shift of on-premises to hosted revenue, a byproduct of strong hyperscaler adoption. While this may temper near-term growth and margin optics, management framed the transition as strategically positive, aligning the business more closely with cloud-native delivery and AI-driven use cases that should support stronger, more scalable economics over time.

Acquisition Dilution and Integration Watch-Points

ServiceNow’s recent security-focused acquisitions, particularly Armis and the VESA/Vezza deals, bring both opportunity and complexity. While Armis is expected to contribute about 1 point to 2026 subscription revenue and help expand the company’s security total addressable market, management acknowledged that these acquisitions could create up to a 50-basis-point headwind to operating margin in 2026. The company expects to absorb the dilution by 2027, but investors will be watching integration execution and the pace of synergy realization closely as a key test of management’s M&A discipline.

Public Sector Timing and Procurement Cycles

Public sector demand remains a growth vector, but timing is a recurring challenge. Management cited government procurement cycles and a prior U.S. government shutdown as factors that effectively shortened the quarter for federal deals. While these dynamics may cloud near-term booking and revenue recognition patterns, executives argued that the resulting pushouts create some upside potential for 2026. Still, the inherently lumpy nature of public sector procurement remains a structural watch-point for investors tracking quarterly momentum.

Investor Concerns Around M&A Pace and Market Reaction

The call also acknowledged investor unease around the company’s recent M&A velocity. Leadership referenced a roughly $10 billion pullback in market capitalization tied to concerns over rapid successive acquisition announcements. Management defended the deals as strategic extensions that are already being integrated into the platform roadmap, but the initial market reaction underscores that investors are scrutinizing not just growth, but the quality and capital efficiency of that growth. Clear proof points on integration and returns will be important in calming these concerns.

Pricing Strategy: Balancing Consumption and Seat-Based Models

Pricing strategy emerged as another area of investor interest, especially in the context of AI. Management noted that customers are looking for a mix of flexibility and predictability, and said that hybrid models—combining traditional subscriptions with consumption elements such as assist packs—are seeing good traction. However, executives cautioned against moving fully to consumption-based pricing, arguing that it could undermine predictability for customers and potentially slow adoption if not handled carefully. This measured stance suggests ServiceNow is intent on monetizing AI while avoiding the volatility that can come with pure usage-based models.

2026 Outlook: Durable Growth, Higher Margins and Cash Returns

ServiceNow’s guidance framed 2026 as another year of strong, profitable growth. The company projected subscription revenues of $15.53–$15.57 billion, implying about 19.5%–20% constant-currency growth, including a 1‑point boost from Moveworks. Subscription gross margin is expected around 82%, with a non‑GAAP operating margin of 32%, up roughly 100 basis points year over year, and a free cash flow margin of 36%, also up 100 basis points and running significantly ahead of prior long-term targets. For Q1 2026, management guided subscription revenue to $3.65–$3.655 billion (18.5%–19% constant-currency growth, including a 1‑point benefit from Loopworks and a 1.5‑point headwind from the on‑prem-to-hosted mix shift), CRPO growth of 20% in constant currency, and a 31.5% operating margin. The company expects Armis to close in the second half, contributing about 1 point to 2026 subscription revenue and exerting up to a 50-basis-point drag on operating margins, while an incremental $5 billion share repurchase authorization and an immediate $2 billion accelerated buyback underscore management’s conviction in the outlook.

In sum, ServiceNow’s earnings call painted the picture of a company executing at a high level: beating expectations on growth and profitability, monetizing AI at scale, and translating that strength into substantial free cash flow and shareholder returns. While investors must weigh near-term margin headwinds from cloud and AI costs, integration risk from stepped-up M&A, and the optics of pricing and procurement timing, the overarching narrative is one of durable, broad-based growth with expanding margins. For investors focused on long-term compounding in large-cap software, ServiceNow’s combination of double-digit top-line expansion, rising profitability, and aggressive capital return remains compelling.