ServiceNow, Inc. (NOW), Financial Analysis

1 Revenue & Business Model

• Storyline: subscription growth holds near 21% while acquisitions and AI hosting costs lower GAAP margins and backlog growth slows. Chapters 2 to 4 cover the three revenue drivers: the subscription platform, Now Assist and AI agents, and security after the Armis and Veza acquisitions.
• One reportable segment, two revenue types: subscription revenue (cloud and self hosted software) was 97.0% of FY2025 revenue; professional services and other (3.0%) runs at a gross loss. Products sit on one ServiceNow AI Platform in four areas: Technology, CRM and Industry, Core Business, and Creator and Other.
• Revenue FY2021 $5.90bn to FY2025 $13.28bn, a 22.5% CAGR; TTM Q3 2026 $15.43bn.
• Regions FY2025, by location of users: North America $8.35bn (62.9%, about 94% United States), EMEA $3.40bn (25.6%), Asia Pacific and other $1.53bn (11.5%). Q3 2026 growth: North America +20.7%, EMEA +17.6%, Asia Pacific and other +25.9%.
• Sales channel and delivery: direct sales 76% of Q3 2026 revenue against 78%; self hosted subscription revenue recognized upfront $96m against $104m; the platform runs in company data centers and through public cloud providers.
• Employees 29,187 at 31 Dec 2025, of which 14,601 in the United States.

2 Subscription Platform: Growth Near 21%, Slower Backlog Growth

• Subscription revenue $3.99bn in Q3 2026, +21% (20.5% in constant currency), 97.1% of revenue; TTM $15.00bn. Growth was 21% in Q4 2025, 22% in Q1 2026 and 24.5% in Q2 2026 (company figures).
• Timing effects: Q2 2026 included US Federal on premise revenue pulled forward from Q3 2026, about half of a 150bps beat; Q1 2026 carried about 75bps of headwind from delayed Middle East on premise deals.
• cRPO growth slowed from 25% at Q4 2025 to 20.5% at Q3 2026; Q4 2026 guidance 18.5%. Some Armis contracts carry termination for convenience clauses that limit the amount counted in cRPO (Q1 2026 release).
• Subscription gross margin: GAAP 73.6% in Q3 2026 against 79.8%; non GAAP 80% against 83%; professional services gross loss of $39m.
• FY2026 subscription guidance $15.78bn to $15.79bn, +22.5%, raised three times from $15.53bn to $15.57bn in January 2026.

How enterprise software is changing

• Growth at large application vendors runs at 12% to 17%: Salesforce subscription and support +12% (Jul 2026 quarter), Workday subscription +13.9%, Adobe revenue +13% (Aug 2026 quarter) and Microsoft 365 cloud +17.2% (Sep 2026 quarter), against ServiceNow subscription +21%.
• Pricing moves from seats toward consumption: Microsoft 365 commercial seats grew 5% while Microsoft 365 cloud revenue grew 17.2%; ServiceNow sells AI as add on tiers and consumption.
• AI native competitors and data access: the FY2025 10-K adds AI native competitors, integration partners that could block or charge for data access, and the migration of hosted instances to public cloud providers to its innovation risk factor.
• Long term target: over $30bn of subscription revenue in 2030 (May 2026 Financial Analyst Day), a 17.4% CAGR from the 2026 guidance midpoint.

3 Now Assist and AI Agents: AI ACV Target Raised to $1.7bn

• AI ACV passed $1bn in Q2 2026; the Q3 2026 actual is not disclosed. Now Assist net new ACV more than doubled in Q4 2025; Now Assist customers above $1m ACV grew over 130% in Q1 2026.
• Usage: agentic AI consumption in production up more than 13x year to date (Q3 2026 release); customers with agentic AI in production up 9x in nine months and deals with five or more AI products up 5.5x (Q2 2026 call).
• Price: AI native products carry a 20% to 30% price uplift and Pro Plus above 30% (Q2 2026 call); about 50% of net new business is not seat based, under a hybrid seat plus consumption model.
• Larger deals: 19 deals above $5m of net new ACV in Q3 2026, up over 135%; 123 deals above $1m in Q2 2026, +40%.
• Moveworks ($2.41bn, closed 15 Dec 2025) added about 100bps to Q1 2026 subscription growth guidance; its assistant now sits in ServiceNow Otto and EmployeeWorks.

How AI changes enterprise software

• Peers report AI revenue in different units: Salesforce Agentforce ARR above $1.5bn, +240% (Jul 2026 quarter); Microsoft AI business run rate above $37bn, +123% (Mar 2026 quarter), and over 30m paid Microsoft 365 Copilot seats in FY2026; Workday AI in over 25% of new ACV; Adobe AI first ARR up over 150%.
• Model providers become partners: in Oct 2026 ServiceNow expanded its OpenAI partnership, added Gemini Enterprise integration with Google Cloud and formed the Control Tower Alliance with Anthropic, AWS, Cisco and others.
• Risk factor: the FY2025 10-K extends AI risk to internal use and adds that AI systems may produce unreliable or biased results that could limit adoption of AI enabled products.

4 Security and Identity: Armis and Veza

• Two security deals in 2026: Veza (identity security, closed 2 Mar 2026) and Armis (asset discovery and cyber exposure management, closed 20 Apr 2026).
• Cash paid for acquisitions $9.17bn in 9M 2026 against $215m in 9M 2025; goodwill $10.01bn at 30 Sep 2026 against $3.58bn at Dec 2025.
• Contribution: Armis adds about 125bps to FY2026 subscription growth; ServiceNow reports no separate security revenue; the Q2 2026 release names Security and Risk among demand drivers.
• Cost: amortization of purchased intangibles 4.8% of Q3 2026 revenue against 1.0%; business combination costs $35m in Q3 2026; cash paid for acquisitions in Q2 2026 $7.45bn.

How the security market is changing

• Platforms consolidate: Palo Alto Networks next generation security ARR grew 63% to $9.10bn in the Jul 2026 quarter, with a $20bn target for FY2030; CrowdStrike ARR grew 25% to $5.84bn with net new ARR of $333m.
• Securing AI agents: Okta and Zscaler position products for securing AI agents; Okta cRPO +14% and Zscaler ARR +25% (20% excluding Red Canary) in the Jul 2026 quarter; CrowdStrike's CEO linked demand to AI adoption.
• Margins differ: GAAP operating margin Palo Alto Networks 5.0%, Okta 13.3%, Zscaler (1.7%), CrowdStrike (2.3%); ServiceNow 9.4% in Q3 2026 for the whole company.

5 Financial Analysis & Ratios

• Revenue growth near 21% for five years; GAAP operating margin falls after the 2026 acquisitions. Operating margin rose from 4.4% in FY2021 to 13.7% in FY2025; TTM 9.7%.
• Net income TTM $1.45bn, 9.4% of revenue; 9M 2026 other income of $357m came mainly from unrealized gains on strategic investments in Q1 and Q2 2026; 9M 2026 effective tax rate 30% against 22%. FY2023 net income of $1.73bn included a $723m tax benefit from a valuation allowance release.
• Free cash flow TTM $4.75bn (operating cash flow less capex), 30.8% of revenue; company defined free cash flow $5.15bn also adds back cash costs of business combinations. Capex TTM $584m, 3.8% of revenue, against $868m in FY2025.
• Balance sheet at 30 Sep 2026: cash and marketable securities $6.96bn plus strategic investments $2.05bn; debt $7.52bn, incl. commercial paper $2.09bn; goodwill $10.01bn and intangibles $3.59bn against equity $13.10bn.
• Capital returns: $2bn accelerated repurchase completed in Q1 2026 (18.5m shares at $107.97); no buybacks in Q2 or Q3 2026; $4.2bn of authorization left; no dividend.

Cost structure and profitability

• Cost of revenue 29.5% of Q3 2026 revenue against 22.7% a year earlier; cost of revenue $1.21bn, +56.5%, as hosting moves to public cloud providers and acquired intangibles amortize.
• Depreciation and amortization $390m in Q3 2026, +101.0%; amortization of purchased intangibles $198m against $33m.
• Sales and marketing 31.0% of revenue, R&D 23.3%, G&A 6.9%; severance $87m in Q3 2026 and $167m in 9M 2026, which the 10-Q ties to streamlining roles through efficiencies driven by AI while hiring in strategic areas.
• Stock based compensation $630m in Q3 2026, 15.3% of revenue in the cash flow statement; FY2025 14.7%; company target below 10% by 2029.
• Operating cash flow $839m, +3.2%; capex $91m against $235m; 9M 2026 operating cash flow $3.10bn, (3%), after deal related cash costs.
• Other income and expense turned to ($15m) in Q3 2026 from $122m a year earlier as interest expense rose and investment gains of 1H 2026 were absent.

6 MD&A & Management Commentary

Q3 2026 results release and earnings call

• Q3 2026 (8-K Ex 99.1 of 28 Oct 2026, refiled the same day by Form 8-K/A without a stated reason): subscription revenue $3.99bn, +21% (20.5% in constant currency), above the $3.975bn to $3.98bn guidance; GAAP EPS $0.27; non GAAP EPS $1.00.
• Backlog and retention: cRPO +21% in constant currency; RPO 46% current; renewal rate 98% (Q3 2025: 97%).
• Margins: non GAAP operating margin 32.6% against 33.5% (computed; the release rounds to 32.5%); non GAAP subscription gross margin 80% against 83%; FY2026 non GAAP subscription gross margin guidance 81%, down from 82%. The 10-Q names third party cloud usage and amortization of acquired intangibles.
• Q4 2026 guidance: subscription revenue $4.245bn to $4.255bn, +22.5% to 23% (21.5% in constant currency); cRPO growth 18.5%; non GAAP operating margin 32%.
• Stated on the call, as reported by Constellation Research: CEO Bill McDermott said six businesses have passed a $1bn run rate and that CRM deployment times are falling to about 30 to 60 days.
• Partnerships (release): expanded OpenAI partnership (ChatGPT plugin, Codex integration), Gemini Enterprise integration with Google Cloud and a Control Tower Alliance whose founding members include Anthropic, AWS and Cisco.
• Q2 2026 call (22 Jul 2026): subscription revenue beat the guidance high end by 150bps, about half from US Federal on premise revenue pulled from Q3 into Q2; non GAAP operating margin 29.4% against 26.5% guidance; GAAP operating margin 4.1%.

Management and CFO commentary

• CFO Gina Mastantuono, Q3 2026 release: AI ACV target raised a second time, to $1.7bn from $1bn; agentic AI consumption in production up more than 13x year to date; lower capex; FY2026 free cash flow margin target raised 100bps to 36%.
• CFO, Q2 2026 release: every topline and profitability metric above the high end of guidance; Security and Risk and ITOM named as demand drivers; Q2 2026 call: non GAAP subscription gross margin guidance of 81% reflects hosting with public cloud providers and AI consumption.
• CFO, Q1 2026 release: the early close of Armis expands the addressable market and adds to subscription growth; FY2026 free cash flow margin target cut to 35% for Armis.
• CFO, Q4 2025 release: Now Assist, Workflow Data Fabric, Raptor and CPQ outperformed in 2025; Q1 2026 guidance included about 150bps of headwind from the shift of self hosted to hosted deals and about 100bps of contribution from Moveworks.
• CEO Bill McDermott, Q3 2026 release: ServiceNow positioned as the Super Intelligence Control Tower; Rule of 57; no capital or compute constraints.
• CEO, Q2 2026 release: Rule of 56; agentic deployments up ninefold in nine months.
• 8-K Item 7.01 of 17 Feb 2026: CEO, CFO, Vice Chairman and two other officers ended their pre arranged sale plans; the CEO agreed to buy $3m of stock on 27 Feb 2026.

7 Peer Valuation & Sector Summary

• Sector: enterprise workflow and application software, AI agents and, since 2026, security. The FY2025 10-K names Microsoft, Oracle, SAP, Salesforce and Workday as competitors, plus AI native entrants and in house builds.
• Growth (latest quarter): PANW 34.0%, CRWD 25.8%, NOW 20.5%, MSFT 18.8%, WDAY 12.8%, CRM 10.8%.
• Operating margin TTM: MSFT 47.1%, CRM 19.9%, WDAY 10.7%, NOW 9.7%, PANW 6.1%, CRWD (2.5%); FCF margin: PANW 35.8%, CRM 34.5%, NOW 30.8%, CRWD 28.3%, WDAY 28.0%, MSFT 17.3%.
• Valuation: NOW 7.1x EV/Sales and 75.6x P/E against CRM 4.9x and 19.5x, WDAY 4.8x and 38.9x, MSFT 11.1x and 27.2x; PANW 25.5x and CRWD 46.7x EV/Sales. On non GAAP EPS NOW trades at 27.7x.

8 Material Events & Contracts

• 13 Forms 8-K and one 8-K/A from 29 Oct 2025 to 28 Oct 2026: five earnings releases, the stock split, the Moveworks share registration opinion, the CEO agreement, two officer notices, two financing filings (credit facility and commercial paper; notes), the annual meeting results and the Q3 2026 release with its same day amendment.
• 2026 acquisitions and funding: Veza and Armis were paid in cash from balance sheet cash, a $4bn term loan signed on 17 Apr 2026 (refinanced by $4bn of notes in May 2026) and commercial paper.

9 Ownership, Voting Power & Annual Meeting

• One class of common stock, one vote per share; no controlling holder. BlackRock and Vanguard Capital Management each report between 7% and 9%; directors and executive officers hold about 0.34%.
• 2026 annual meeting (21 May 2026): nine directors elected; lowest support Eric Yuan 77.4% and Anita Sands 88.0% of votes cast; Bill McDermott 89.8%; say on pay 85.5%; 38m more plan shares approved with 96.0%; the shareholder proposal for action by written consent received 36.6%.
• Insiders, 12 months: one open market purchase, CEO Bill McDermott 28,682 shares for about $3.0m at about $104.60 on 27 Feb 2026, after he and four officers ended their pre arranged sale plans; sales by 10 insiders about $9.3m, mostly under pre arranged plans; no open market trades after 1 Sep 2026.
• Largest sales: Chief People and AI Enablement Officer Jacqueline Canney $2.36m, President Global Customer Operations Paul Fipps $2.06m, director Anita Sands $1.48m at $90.14, director Paul Chamberlain $1.08m; CFO Gina Mastantuono sold 832 shares at $808 to $850 before the split ($0.69m).

2026 annual meeting and December 2025 special meeting

• Special meeting of 5 Dec 2025 approved the charter amendment for the 5 for 1 split: 182.4m shares for and 61,000 against, counted before the split.
• Investor deck before the annual meeting (11 May 2026): FY2025 revenue $13.3bn, renewal rate 98% and about 97% of the CEO's 2025 target pay at risk.
• No transcript of meeting remarks or shareholder questions was filed.

10 Risk Factors

• Item 1A of the FY2025 Form 10-K holds 27 risk factors, as in FY2024 (11,280 words against 10,822); none added or removed, four materially reworded; the three Forms 10-Q of 2026 report no material changes.

How risk factors changed

• Comparison: 10-K FY2025 filed 29 Jan 2026 acc 0001373715-26-000007 against 10-K FY2024 filed 29 Jan 2025 acc 0001373715-25-000010.
• Factor count is unchanged at 27 while total words rise from 10,822 to 11,280; no factor is added or removed.
• AI is named 32 times across 8 factors against 24 times across 7 a year earlier.
• Public cloud is named 8 times against 4, as text on migrating hosted instances to public cloud providers is added to the innovation and service disruption factors.
• ESG is no longer used (7 mentions a year earlier) and is replaced by corporate sustainability (9 mentions).
• Tax text now cites the One Big Beautiful Bill Act and Jan 2026 OECD Pillar 2 safe harbor guidance.

11 Stock Price, Scenarios & Sensitivity

• NOW closed at $105.12 on 30 Oct 2026, 43.0% below the 52 week high of $184.43 and 29.4% above the low of $81.25; the Dec 2024 month end close was $212.02.
• Valuation: free cash flow yield 4.4% on TTM free cash flow; market value $109.1bn on 1.04bn shares; net debt $563m.
• Scenario model: revenue grows from TTM Q3 2026 $15.43bn for three years; GAAP operating margin as stated; 23% tax rate; net interest zero; price equals TTM Q3 2029 EPS times exit P/E.

Critical factors and core assumptions

• Revenue base TTM Q3 2026 $15.43bn; GAAP operating income $1.49bn (9.7%); non GAAP $4.81bn (31.2%).
• Best case: 21% revenue CAGR; 22% GAAP operating margin as stock compensation falls toward 10% of revenue and acquired intangibles amortize; 40x P/E; share count unchanged.
• Base case: 17% revenue CAGR, in line with the path to over $30bn of subscription revenue in 2030; 17% margin; 32x P/E; share count +1%.
• Worst case: 11% revenue CAGR from seat compression and lower price uplift; subscription gross margin held near 74% by hosting and AI compute costs; 11% margin; 22x P/E; share count +2%.
• Tax rate 23% (FY2025 22.7%); net interest set to zero; no further large acquisitions.

Scenarios, three years forward

Sensitivity analysis

Disclaimer

This analysis is for information only and is not financial advice. It is derived from public SEC filings retrieved via sec-api.io and is not a publication of the U.S. Securities and Exchange Commission. Scenario values are model outputs under stated assumptions and are not forecasts. Data as of 30 October 2026.

Sources

All company figures are read from SEC filings retrieved through the sec-api.io MCP server. Q2 2026 call statements are taken from a published transcript of the call; Q3 2026 call statements, where no transcript was available, from Constellation Research coverage of the call. Operating margins are computed from filed dollar amounts; the company rounds its margin figures to the nearest 0.5 pts.