$NOW · ServiceNow, Inc.
ServiceNow reported Q3 2026 results with subscription revenues of $3.988B (+21% YoY) and total revenues of $4.106B (+20.5% YoY), beating the high end of guidance. However, GAAP net income fell 45% YoY to $277M ($0.27/share), and GAAP operating margin compressed to 9.5% from 16.8% a year ago. The company raised its full-year AI ACV target to $1.7B and lifted its free cash flow margin outlook by 100bps to 36%.
- Subscription revenues of $3.988B grew 21% YoY, beating guidance.
- GAAP net income dropped 45% YoY to $277M ($0.27/share) from $502M ($0.48/share).
- GAAP operating margin compressed to 9.5% from 16.8% a year ago, driven by sharply higher costs.
- AI annual contract value target raised to $1.7B for 2026, up from $1B at the start of the year.
- RPO reached $29.7B, up 22% YoY; 19 deals over $5M in net new ACV, up 135% YoY.
Extended-hours trading shows NOW at $127.44, down 15.11% from the regular close of $150.13. The steep selloff reflects alarm over GAAP net income collapsing 45% YoY and operating margin nearly halving, despite the topline beat and AI narrative strength.
A 15% after-hours wipeout on a $155B market-cap enterprise software leader signals that investors are no longer willing to overlook collapsing GAAP profitability for AI growth promises.
ServiceNow's AI-heavy narrative and RPO growth mirror the enterprise software sector's pivot to agentic AI, but the severe GAAP margin compression contrasts with peers who have managed AI investment without sacrificing profitability to this degree.
GAAP cost of subscription revenues surged 58% YoY to $1,054M, compressing subscription gross margin to 73.5% from ~80%. Operating expenses grew 22% YoY, with R&D up 27% — if AI investment costs continue outpacing revenue growth, margin recovery could stall.