ServiceNow reported a quarter most companies would envy, and Wall Street handed it its worst day on record. Shares cratered roughly 19% in premarket trading Thursday — on track for the largest single-day drop in the company's history, Reuters reported — because of two pennies and a guidance gap. Non-GAAP earnings came in at $1.00 a share against a $1.02 consensus, and fourth-quarter revenue guidance of $4.25–$4.26 billion fell short of the $4.36 billion analysts wanted.
The quarter itself, per Compare the Cloud, was fine everywhere else: subscription revenue of $3.98 billion, up 21% year over year and ahead of the high end of guidance; current remaining performance obligations of $13.65 billion, up 20.5%; a 98% renewal rate; and a full-year outlook that was raised, not cut — free cash flow margin now guided to 36% from 35%.
The selloff was never really about the two pennies. ServiceNow is this year's poster child for the "SaaSpocalypse" thesis — the fear that AI agents will eat enterprise software seats — and Thursday's punishment spread to Zscaler, Salesforce, and Fortinet. Investors are no longer giving anyone in software a free pass to just exist.
Which is what makes this week's other announcements so strange. Alongside the results, ServiceNow expanded its partnership with OpenAI: a ChatGPT plug-in that reaches the ServiceNow Action Fabric, work extending into AI governance, cybersecurity remediation, and agentic development. A day earlier it announced an expanded Google Cloud partnership connecting its workflows to Gemini Enterprise. And it launched the Control Tower Alliance — Anthropic, AWS, Cisco, NVIDIA, Okta, OpenAI, and Stripe among the founding members — a bet that enterprises need a centralized control plane to discover, secure, govern, and measure AI. "No single solution, no matter how powerful, can see everything, protect anything on its own," ServiceNow COO Amit Zavery said in the announcement.
Then there's the number the market didn't reward: net-new AI ACV was up 65% year over year, and ServiceNow raised its target to $1.7 billion of AI bookings by the end of 2026.
So here's the contradiction in plain terms. Wall Street priced ServiceNow as a company AI will replace. The biggest names in AI — OpenAI, Anthropic, NVIDIA, AWS — just signed onto the thesis that ServiceNow is the platform where AI gets governed and put to work. One of those two readings badly misprices this stock. The market made its bet Thursday morning; the company made the opposite one, and it brought the entire AI industry along with it.
— via Compare the Cloud