NOW Q4 Earnings Beat Estimates, Revenues Rise Y/Y, Shares Fall

Core Insights - ServiceNow (NOW) reported fourth-quarter 2025 adjusted earnings of 92 cents per share, exceeding the Zacks Consensus Estimate by 5.75% and reflecting a 26% year-over-year increase. Revenues reached $3.57 billion, surpassing the consensus mark by 1.25% and increasing by 20.7% year over year [1][8]. Revenue Performance - Subscription revenues improved by 20.9% year over year to $3.47 billion, while on a constant currency basis, revenues increased by 19.5% to $3.41 billion. Professional services and other revenues rose by 12.1% year over year to $102 million, with a constant currency increase of 11% to $101 million [2]. - The current remaining performance obligations (cRPO) stood at $12.85 billion, marking a 25% year-over-year increase on a reported basis and a 21% increase on a constant currency basis. Remaining performance obligations on a constant currency basis rose 22.5% year over year to $28.2 billion [3]. Client Growth and Product Performance - The company recorded 244 transactions exceeding $1 million in net new annual contract value (ACV) in Q4 2025, representing nearly 40% year-over-year growth. ServiceNow ended the quarter with 603 customers with over $5 million in ACV, reflecting approximately 20% year-over-year growth [4]. - AI-powered products such as Now Assist and Raptor significantly contributed to the growth in net new ACV, with RaptorDB Pro tripling its net new ACV year over year. The number of workflows and transactions grew over 33%, increasing from $60 billion to $80 billion and from $4.8 trillion to $6.4 trillion, respectively [5][6]. Operating Metrics - In Q4 2025, the non-GAAP gross margin was 80.3%, down 160 basis points year over year. The subscription gross margin was 82.7%, also contracting by 160 basis points year over year. Professional services reported a gross loss of $2 million compared to a gross income of $7 million in the previous year [7]. - Operating expenses as a percentage of revenues decreased by 180 basis points year over year to 64.2%, while the non-GAAP operating margin expanded by 140 basis points year over year to 30.9% [9]. Cash Flow and Share Repurchase - As of December 31, 2025, the company had cash and cash equivalents and marketable securities totaling $6.28 billion, up from $5.41 billion as of September 30, 2025. Cash from operations was $2.24 billion, compared to $813 million in the previous quarter, with free cash flow reaching $2.03 billion, up from $592 million in the prior quarter [10]. - The company repurchased 3.6 million shares in Q4 2025 and announced a new share repurchase authorization worth $5 billion, along with plans for a $2 billion accelerated share repurchase program [11]. Guidance for 2026 - For 2026, ServiceNow expects subscription revenues to be between $15.53 billion and $15.57 billion, indicating a rise of 20.5% to 21% from 2025. The guidance includes a 1% contribution from Moveworks. The non-GAAP subscription gross margin is anticipated to be 82%, with a non-GAAP operating margin of 32% and a free cash flow margin expected to be 36% [12]. - For Q1 2026, subscription revenues are projected to be between $3.65 billion and $3.67 billion, suggesting year-over-year growth of 21.5% on a GAAP basis [13][14].