ServiceNow raises 2025 subscription revenue and margin targets amid AI-led growth and 5-for-1 stock split

Earnings Call Insights: ServiceNow (NOW) Q3 2025

MANAGEMENT VIEW

* CEO William McDermott described Q3 as delivering “another set of stunning quarterly results that absolutely shattered expectations.” He highlighted subscription revenue growth of 20.5% year-over-year in constant currency, current RPO growth of 20.5% year-over-year, and operating margin of 33.5%. He reported 103 deals greater than $1 million in net new ACV, with 6 over $10 million and noted technology workflows had 50 deals over $1 million. McDermott stated, “Our AI products are on pace to exceed $0.5 billion in ACV this year, excellent progress toward beating at $1 billion target next year.” He emphasized ServiceNow’s positioning as an integrated AI workflow platform, citing strong momentum for the Now Assist product and AI Control Tower.
* McDermott announced, “We’re raising guidance again heading into the fourth quarter,” and introduced the concept of the “Super 8,” adding ServiceNow to the MAG 7 tech leaders.
* President & CFO Gina Mastantuono stated, “Q3 showcased another standout quarter of elite level execution with significant outperformances across all of our top line and profitability guidance metrics.” She reported Q3 subscription revenues of $3.299 billion, RPO at approximately $24.3 billion, and current RPO at $11.35 billion. She highlighted transportation and logistics as leading industry growth, with government also showing strength. Mastantuono announced, “the Board of Directors has approved a 5-for-1 stock split designed to make our shares more accessible to a broader base of investors.”

OUTLOOK

* Mastantuono announced an increase in 2025 guidance, stating, “we are raising our subscription revenues by $55 million at the midpoint to $12.835 billion to $12.845 billion, representing 20.5% year-over-year growth.” She added, “We are raising our full year operating margin target by 50 basis points from 30.5% to 31% as AI operational efficiencies continue to drive incremental leverage.” The free cash flow margin target was also raised by 200 basis points from 32% to 34%.
* For Q4, Mastantuono guided to subscription revenues between $3.42 billion and $3.43 billion, representing 19.5% year-over-year growth. Operating margin guidance was set at 30%.
* She noted that ongoing government issues may impact Q4 deal timing, stating, “we’ve prudently factored in this timing dynamic into our guidance.”

FINANCIAL RESULTS

* Mastantuono reported that Q3 subscription revenues were $3.299 billion, RPO stood at $24.3 billion, and free cash flow margin was 17.5%. Operating margin was 33.5%, 300 basis points above guidance. The company ended Q3 with $9.7 billion in cash and investments, and bought back approximately 644,000 shares, up nearly 70% versus last quarter. The number of customers generating over $5 million in ACV rose to 553.
* Mastantuono highlighted that Now Assist had 12 deals over $1 million in net new ACV, including one over $10 million, and AI products are on pace to exceed $0.5 billion in ACV for the year.

Q&A

* Kasthuri Rangan, Goldman Sachs: Asked about institutionalizing Agentic technology adoption and the role of outside expertise. McDermott explained, “You have a platform here with AI platform for business transformation that resides above the systems of record and gives you that clean pane of glass to integrate the business processes into workflows.” Amit Zavery added, “we have 100-plus prepackaged workflows with Agentic built in...and we’re investing in FD kind of a model with forward deployed engineers who are really AI black belt.”
* Samad Samana, Jefferies: Inquired about the breadth of AI deals and federal government prudence in guidance. McDermott responded, “it is now a standard way of selling in our company,” and Mastantuono explained, “we absolutely have factored in a bit more prudence into this guide because...procurement processes do take a bit of time.”
* Aleksandr Zukin, Wolfe Research: Asked about demand trends and AI credit consumption. McDermott said, “The demand is amazing. Our demand right now is better than I’ve ever seen it.” Mastantuono noted proactive renewal cohort management boosted cRPO results and momentum.
* Tyler Radke, Citi: Asked about drivers of AI consumption and the $500M Now Assist ACV. Zavery detailed, “Agentic is really the game changer for our consumption business,” and Mastantuono stated, “we’re on pace to exceed $0.5 billion by the end of the year, which is tracking ahead of where we thought we’d be.”
* Michael Turrin, Wells Fargo: Asked about the Q4 subscription revenue guide. Mastantuono cited public sector and on-prem as factors, emphasizing, “the full Q3 revenue beat we put into the full year.”
* S. Kirk Materne, Evercore: Asked about industry-specific AI workflows. McDermott emphasized, “customers expect...you to know their industry cold.” Zavery described industry-focused data models and joint solutions.
* Keith Bachman, BMO: Inquired about security business acceleration and margin guidance. Zavery cited AI-related security issues as a tailwind, and Mastantuono confirmed higher margin trajectory but reserved updates for 2026.

SENTIMENT ANALYSIS

* Analysts’ tone was positive, with repeated congratulations and focus on execution, demand, and AI momentum. Questions often sought clarity on AI monetization, federal demand, and margin expansion.
* Management maintained a highly confident and optimistic tone throughout, frequently using phrases like “our confidence in the future has never been stronger” (McDermott) and “exceptional quarter with standout performances across the board” (Mastantuono). During Q&A, management was detailed and assertive, providing clear answers and additional color on execution and strategy.
* Compared to the previous quarter, sentiment was even more upbeat, with more focus on exceeding expectations, new strategic milestones, and a higher level of guidance raises.

QUARTER-OVER-QUARTER COMPARISON

* Guidance language shifted upward, with subscription revenue and margin targets both raised versus Q2. In Q2, guidance for 2025 subscription revenues was set at $12.775 billion to $12.795 billion and operating margin at 30.5%. In Q3, these increased to $12.835 billion to $12.845 billion and 31%, respectively.
* Strategic focus expanded on AI adoption, Now Assist momentum, and industry-specific solutions. The 5-for-1 stock split and larger, more frequent large deals were new elements this quarter.
* Analysts’ focus evolved from AI platform differentiation in Q2 to deeper questions on AI monetization, consumption, and operational efficiency in Q3.
* Management’s tone was more assertive in addressing strategic positioning within the AI ecosystem and highlighted stronger-than-expected demand trends.

RISKS AND CONCERNS

* Mastantuono noted, “the ongoing government may impact deal timing in our U.S. federal business in Q4,” indicating continued caution around public sector procurement cycles.
* Management cited industry-specific execution and integration complexity as areas requiring continued investment, including forward deployed engineers and tailored customer solutions.

FINAL TAKEAWAY

ServiceNow’s Q3 2025 results showcased accelerating AI-driven growth, record operating margins, and robust demand across verticals. Management raised guidance for subscription revenues and profitability while announcing a 5-for-1 stock split. The company highlighted rapid adoption of AI products, resilient federal business, and expanding large deal activity, signaling confidence in achieving long-term growth and margin expansion targets as ServiceNow deepens its position as a leading enterprise AI platform.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/now/earnings/transcripts]

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