NOW 3Q25: Steady Performance with AI greenshoots

ServiceNow once again delivered a solid quarter. Driven by early renewals and an better than expected Federal segment, the company’s 3Q cRPO beat was the largest of the year. The 4Q revenue guidance was conservative and in line with sell-side expectations, reflecting cautious assumptions on U.S. government shutdown. Despite continued gross margin pressure from AI investments, internal productivity gains from AI tool adoption drove operating margins above expectations. Management disclosed that AI (broadly defined to include Now Assist, AI Control Tower, and Data Fabric) are expected to surpass US$500M in ACV by year-end, representing 4–5% of total ACV, and hinted strong confidence in exceeding the US$1B AI ACV target by the end of next year. Overall, we expect core business momentum to remain stable into 4Q and 2026, while maintaining a cautiously optimistic stance on incremental AI contribution.

Q3 Review: Larger Beat on Revenue

• cRPO grew +20.5% YoY (cc), exceeding guidance by 250bps (vs. 200bps in 2Q and 150bps in 1Q). Management noted that roughly half of the outperformance came from early customer renewals, consistent with the prior quarter.

• The Federal segment rebounded strongly during the quarter, with NNACV exceeding internal expectations.

• Subscription revenue rose +20.5% YoY (cc), in line with market expectations and 100bps above guidance.

• Gross margin remained flat at 81%, while operating margin surprised positively by +3ppts to 33.5%, reflecting meaningful efficiency gains from AI-enabled automation and internal cost optimization.

Q4 Guidance: In Line but Conservative