ServiceNow Raises Full-Year Guidance as Subscription Revenue Surges 25%
Strong performance in AI and cybersecurity divisions drives growth, though broader SaaS sector weakness continues to pressure valuations.
ServiceNow has reported second-quarter earnings that exceeded analyst expectations, driven by a 25% year-on-year increase in subscription revenue to $3.88 billion. Total revenue rose 24% to $3.99 billion, while adjusted earnings per share (EPS) increased 11% to $0.90, surpassing the consensus estimate of $0.86. The company raised its full-year subscription revenue guidance to a range of $15.76 billion to $15.78 billion, representing growth of 22.5%.
Despite these strong financial results, ServiceNow’s stock has declined 40% year-to-date, mirroring a broader sell-off in the software-as-a-service (SaaS) sector. The company noted that subscription revenue accelerated from 19% growth in the first quarter to 23% on a constant currency basis in the second quarter, indicating sustained momentum in its core business operations.
Key growth drivers highlighted by the company include its artificial intelligence division, where annual contract value (ACV) surged 40% quarter-on-quarter to exceed $1 billion. The firm also reported a $1 billion cybersecurity business, stating it is growing faster than any other top competitor in the space. Additionally, the customer relationship management (CRM) segment has reached $2 billion in ACV with accelerating growth.
Looking ahead, ServiceNow projects third-quarter subscription revenue growth of 20.5%, ranging from $3.975 billion to $3.98 billion. The company indicated that its guidance is conservative and may have upside potential due to strong new net ACV. Remaining performance obligations (RPO) increased by 21% to $29 billion, with current RPO (cRPO) rising 21% to $13.2 billion, signalling robust future revenue streams.
The Motley Fool, which published the original report on these earnings, noted that the stock trades at a forward price-to-sales multiple of 5 based on 2027 analyst estimates. While the firm’s analyst team did not include ServiceNow in their current top ten stock recommendations, they highlighted the company’s embedded systems and strong gross margins as factors that could support long-term value despite near-term market volatility.
