ServiceNow strong results overshadowed by AI disruption fear

[SAN FRANCISCO] ServiceNow gave a sales outlook in the current quarter that was stronger than expected, but failed to reduce investor anxieties that artificial intelligence (AI) will disrupt the software maker’s business.

Subscription revenue in the period ending in March will be about US$3.65 billion, the company said on Wednesday (Jan 28). Analysts, on average, estimated US$3.58 billion, according to data compiled by Bloomberg. Current remaining performance obligation, a measure of near-term bookings, is expected to expand almost 23 per cent in the quarter, also faster than projected.

Traditional leaders of the application software industry, such as ServiceNow, Salesforce, and Adobe, have faced steep scepticism from the market over the last year about their AI strategies.

ServiceNow specialises in software that helps companies organise and automate their personnel and information technology operations. Like its peers, the company has worked to weave generative AI features through its tools and charge more for them.

The shares declined about 3 per cent in extended trading after closing at US$129.62. ServiceNow has plunged 45 per cent over the past 12 months to Wednesday’s close, a much steeper drop than many technology peers.

“We are a little surprised to see the stock trading lower as we thought the print/guide was as expected or better for the most part,” wrote Matthew Hedberg, an analyst at RBC Capital Markets.

On a call with analysts after the results were released, chief executive officer Bill McDermott defended the company’s AI strategy and recent string of acquisitions. He argued that ServiceNow is a crucial platform for businesses to use AI across their operations, not simply an applications vendor that has added some AI features.

“We are a platform company executing a long-term platform strategy where AI agents and workflows are harmonious and synonymous, creating sustained advantage, not short-term wins,” McDermott said. “This makes ServiceNow’s AI platform more strategically relevant today than ever.”

The company’s main generative AI product, Now Assist, outperformed expectations and surpassed US$600 million in annual contract value at the end of December, McDermott said on the call.

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ServiceNow lets customers use most of the major AI models with its tools, and separately on Wednesday announced an expanded relationship with Anthropic PBC to provide greater access to that firm’s Claude model.

Last week, ServiceNow unveiled a three-year deal forging greater ties with OpenAI.

In the fourth quarter, subscription revenue increased 21 per cent to US$3.5 billion. Profit, excluding some items, was 92 US cents per share in the period, which ended Dec 31. Both exceeded Wall Street’s estimates. The company had 603 customers with more than US$5 million in annual contract value, up from 553 in the previous quarter.

After years of eschewing big mergers, ServiceNow has been on a deal spree. Last month, it announced its largest-ever acquisition, an agreement to buy cybersecurity startup Armis for US$7.75 billion. The deal is expected to be completed in the second half of the year, the company said.

“The speculation out there is that M&A is the new playbook out of necessity,” McDermott said. Instead, the company is using mergers to expand into new markets, he said. After Armis, “we do not see any other large white spaces that are necessary to complete our platform”, McDermott said.

The company’s board announced an additional US$5 billion of share repurchases, “with the primary objective of managing the impact of dilution”. The company announced its first buyback programme in May 2023, with a prior expansion in early 2025. The new buyback suggests management confidence in the face of AI disruption fears, wrote Anurag Rana, an analyst at Bloomberg Intelligence. BLOOMBERG