ServiceNow Shares Drop Over 18% as Slowing Q4 Growth Guidance Sparks Market Concerns

TradingKey - On October 28 ET, ServiceNow (NOW) reported its third-quarter financial results, after which its stock plunged nearly 18% in after-hours trading. As of press time, ServiceNow dropped 18.79% in overnight trading to $121.92.

[Source: TradingView]

Although the company raised its full-year subscription revenue guidance and increased its 2026 AI product annual contract value target to $17 billion, an expected slowdown in fourth-quarter current remaining performance obligations (cRPO) growth, combined with adjusted earnings per share missing market expectations, has prompted the market to reevaluate the company's growth prospects.

ServiceNow Q3 Results: Revenue Grows, EPS Misses Estimates

ServiceNow's third-quarter revenue increased 20.5% year-over-year to $4.106 billion, with subscription revenue rising 21% year-over-year to $3.988 billion. As of September 30, the company's remaining performance obligations (RPO) reached $29.7 billion, up 22% year-over-year; contract revenue expected to be recognized over the next 12 months (cRPO) was $13.65 billion, up 20.5% year-over-year.

Third-quarter non-GAAP adjusted earnings per share were $1.00, falling short of the $1.02 expected by analysts. The company's interest income declined year-over-year, while interest expenses rose due to increased financing costs related to the Armis acquisition, weighing on earnings.

Overall, the company maintained growth in revenue and subscription revenue, but its adjusted earnings per share fell slightly short of market expectations.

Why Expected Slowdown in Q4 Order Growth Triggers Market Concern?

ServiceNow expects fourth-quarter cRPO to grow 18.5% year-over-year in constant currency, down from 21% in the third quarter. This metric reflects contracted revenue expected to be recognized over the next 12 months, and its slowing growth suggests that future subscription revenue growth may come under pressure, sparking market concerns about the company's growth prospects.

On the AI front, ServiceNow raised its 2026 annual contract value (ACV) target for AI products to $1.7 billion, up 70% from the $1 billion set at the beginning of the year, marking its second target upgrade this year and indicating that the commercialization of AI products is progressing better than previously expected.

However, investors still need to monitor whether new contracts can consistently translate into subscription revenue and whether AI business growth can further drive profitability.

How to View ServiceNow's Stock Price Outlook?

ServiceNow expects fourth-quarter subscription revenue of $4.245 billion to $4.255 billion, up 22.5% to 23% year-over-year, and raised its full-year 2026 subscription revenue guidance to $15.78 billion to $15.79 billion.

Although the fourth-quarter subscription revenue growth guidance was higher than the third quarter's 21%, the company expects contract revenue growth over the next 12 months to slow to 18.5%, down from 21% in the third quarter, sparking market concerns over its future growth momentum.

Looking ahead, key areas to monitor include fourth-quarter subscription revenue performance and the progress of its AI business. If contract revenue growth continues to slow and the AI business fails to further drive revenue and profit growth, ServiceNow's stock price may remain under pressure; if subscription revenue maintains steady growth, market concerns regarding the company's growth prospects are expected to ease.