ServiceNow Earnings: Excellent Quarter from Any Angle

Key Morningstar Metrics for ServiceNow

• Fair Value Estimate: $1,010.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of ServiceNow’s Earnings

ServiceNow’s NOW first-quarter revenue grew by 20% year over year in constant currency to $3.09 billion, driven by solid renewals, generative AI, and customer workflow adoption. The non-GAAP operating margin was 30.9% for the quarter. Results topped the high end of guidance on key measures.

Why it matters: Our read on software results early in this earnings cycle is that macro issues from tariffs and trade are not weighing down demand. ServiceNow is no exception, as it hit all the right notes and addressed overall investor concerns on tariffs and the Department of Government Efficiency head on.

• Subscription revenue was in line with our estimate and grew by 19.1% year over year to $3.01 billion. We see strength across workloads and geographies, with healthy large deals. Demand from the US federal accounts was strong and should remain so as modernization efforts continue with DOGE.
• Generative AI remains a key theme and we think it should help maintain durable growth over the next five years. Management noted acceleration with the number of Pro Plus deals quadrupling sequentially, while AI-related deal sizes grew 33% over the year-ago period.

The bottom line: We’ve raised our fair value estimate for ServiceNow to $1,010 per share from $990 based on results and guidance. We view the stock as attractive and highlight it as one of our top picks. ServiceNow offers the best marriage of growth and profitability in software in our view.

Coming up: Overall guidance is impressive in this environment. ServiceNow raised its full-year revenue guide by $5 million and kept its margin outlook steady. For the second quarter, guidance was slightly better than expected for revenue and slightly shy of what we anticipated for profitability.

• Management did a deep dive on the pipeline and repeatedly stressed that they view the outlook as conservative, while noting no change in customer behavior. We therefore believe the company is set up to perform well throughout the rest of the year.