ServiceNow shares fell 27.3% on 29 October, closing at $$109.09 after a previous close of $$150.13.
ServiceNow's fourth-quarter revenue guidance undercut the raise
Third-quarter revenue rose 20.5% year-on-year to $$4.1 billion, up 3.0% on the second quarter, and current remaining performance obligations, the company's measure of contracted revenue due within 12 months, grew 20.5% to $13.65 billion, according to the results release. The company also lifted two full-year targets, moving free cash flow margin guidance up a percentage point to 36.0% and raising the year-end goal for AI-related annual contract value to $1.7 billion. None of that was enough to satisfy the market. The deceleration shows up in ServiceNow's own numbers too: this quarter's revenue growth was slower than in 7 of the previous eight quarters.
Profitability fell faster than revenue grew
The GAAP numbers were weaker than the headline beat suggested. Operating margin fell 7.4 percentage points year-on-year, to 9.4%, down from 16.8% a year earlier. Net margin fell 8.0 percentage points points, to 6.7%. Net income fell 44.8% to $$277.0 million, and diluted earnings per share fell 43.8% to $0.27, against a non-GAAP figure of $1.00 a share. One report linked the shortfall to costs tied to recent acquisitions.
A company-specific drop, not a sector rout
The −27.3% decline was 6.8x ServiceNow's typical daily move over the past year, which has run at 4.0%, and came on volume 5.0x the 30-day average. It is the stock's largest move in this direction since 30 October 2015. That scale was not matched elsewhere: the median move among other covered systems-software companies was a fall of −2.5%, and the S&P 500 fell 0.6% the same session. One report framed the sell-off as part of a wider reassessment of enterprise-software spending tied to AI-disruption fears, noting declines at other software companies the same day. The gap between ServiceNow's −27.3% move and the −2.5% peer median suggests the reaction was tied chiefly to ServiceNow's own guidance, not a sector-wide repricing.
Growth assumptions carry more weight after this quarter
Our base-case valuation model for ServiceNow assumes revenue growth of 20.0% over its first forecast stage. If growth instead runs five percentage points lower, model value falls 24.1%; five points higher, and it rises 30.8%. A one-percentage-point fall in free cash flow margin would lower model value by −3.3%, a smaller swing than either growth scenario. Against that framework, ServiceNow's base-case model value is $$130.00 per share. These are model values under stated assumptions, not a comparison with the share price.
The next test is the fourth quarter
Whether this week's reaction reflects a durable slowdown or a one-quarter guidance gap will be tested when ServiceNow next reports. Fourth-quarter subscription revenue growth will either land inside the 22.5%-to-23.0% range management guided this week, or it will not, and current remaining performance obligations growth will show whether this quarter's 20.5% pace was a trough or the start of a trend.