Key Takeaways
- ServiceNow delivered Q1 revenue of $3.77B, marginally topping forecasts, while EPS matched consensus at $0.97/share
- Shares plummeted 12% during after-hours trading on Wednesday
- Delays in Middle Eastern contracts linked to the Iran conflict created approximately 75 basis points of drag on subscription revenue expansion
- Large customers utilizing NOW Assist generative AI surged more than 130% compared to the prior year
- Raymond James lowered its price objective from $160 down to $130 while maintaining an Outperform stance
ServiceNow (NOW) unveiled its first-quarter 2026 financial performance on Wednesday, and despite meeting expectations on most fronts, the response from investors was decidedly underwhelming.
The enterprise software giant delivered adjusted earnings per share of $0.97, precisely matching what analysts had anticipated. Total revenue reached $3.77 billion, edging past the consensus estimate of $3.75 billion. Technically, these figures represented a modest win. Practically speaking, the market expected significantly more.
Shares tumbled 12% during extended trading hours. Leading up to the announcement, NOW had already declined 33% year-to-date — meaning shareholders were hungry for a decisive upside surprise rather than a marginal beat.
Subscription revenues during the quarter totaled $3.67 billion, slightly surpassing the $3.65 billion forecast. However, management disclosed that growth experienced approximately a 75 basis-point headwind stemming from postponed closures of substantial on-premise contracts in the Middle East, connected to the continuing Iranian conflict.
This disclosure raised eyebrows. It’s uncommon for geopolitical turmoil to materially impact a software company’s quarterly performance in such a direct manner.
Generative AI Continues Impressive Momentum
Despite the tepid market response, one metric genuinely stood out. The number of enterprise clients for ServiceNow’s Now Assist generative AI platform — specifically those with annual contract values exceeding $1 million — exploded by over 130% year-over-year.
CEO Bill McDermott emphasized the achievement: “Our AI growth is far exceeding even our own expectations, reinforcing our position as one of the fastest growing enterprise software companies ever.”
This type of expansion is significant for investors attempting to determine whether artificial intelligence actually drives meaningful revenue growth rather than simply generating buzz.
Following the report, Raymond James analyst Michael Turtis reduced his price target on NOW from $160 to $130, though he maintained his Outperform rating. He observed that upside across critical growth indicators narrowed, attributing the gap between actual results and investor expectations to acquisition integration complexities, accounting nuances, and those delayed Middle Eastern transactions.
Forward Projections Exceed Estimates
The company’s outlook proved more encouraging than the immediate market reaction suggested.
For the second quarter, ServiceNow projected subscription revenue between $3.815 billion and $3.82 billion — surpassing Wall Street’s $3.75 billion estimate. Full-year subscription revenue guidance of $15.7 billion to $15.8 billion similarly topped the Street’s $15.6 billion expectation.
Raymond James observed that ServiceNow’s organic projections remained essentially stable. The firm additionally noted that management intends to reveal at an upcoming analyst day that 2026 AI-related annual contract value expectations have climbed by 50%.
Following the earnings release, the stock was changing hands at $103.07, representing a 45% decline over the preceding six months and substantially below its 52-week peak of $211.48.
ServiceNow finalized its $7.75 billion purchase of Armis, a cyber exposure management provider, earlier in the year. The company also acquired Veza during March 2026. Raymond James indicated it would reevaluate its investment thesis prior to ServiceNow’s Knowledge conference scheduled for early May.
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