NOW · Q4 2025 Earnings

Bullish

ServiceNow

Reported January 28, 2026

30-second summary

Q4 subscription revenue of $3.466B grew 21% reported / 19.5% cc (150bps above the 17.5-18% cc guide), cRPO of $12.85B grew 21% cc (200bps above the +19% cc guide), and Q4 non-GAAP operating margin of 31% beat the 30% guide — a clean four-way beat that closes FY25 at $12.883B subscription revenue (+21% reported / +20.5% cc), 35% FCF margin (100bps above the raised 34% target), and 83.5% non-GAAP subscription gross margin (in-line with guidance). The forward setup: FY26 subscription revenue guidance of $15.53-15.57B implies +19.5-20% cc growth (broadly consistent with FY25's +20% cc, including ~100bps Moveworks contribution), and the FY26 non-GAAP subscription gross margin guide of 82% reflects a 150bps single-step reset from FY25's 83.5%, driven by hyperscaler mix, geo expansion, and AI infrastructure spend. Management is leaning harder than ever into the "trillion-dollar platform" framing — McDermott extended his own commitment to 2030 — and the operating margin (32%) and FCF margin (36%) guides each step up another 100bps even with the gross margin headwind absorbed.

Headline numbers

EPS

Q4 FY2025

$0.92

Revenue

Q4 FY2025

$3.57B

+20.5% YoY

Gross margin

Q4 FY2025

76.5%

Free cash flow

Q4 FY2025

$2.03B

Operating margin

Q4 FY2025

12.5%

Key financials

Q4 FY2025

Metric	Q4 FY2025	YoY	Q3 FY2025	QoQ
Revenue	$3.57B	+20.5%	$3.41B	+4.7%
EPS	$0.92	—	$4.82	-80.9%
Gross margin	76.5%	—	81.0%	-450bps
Operating margin	12.5%	—	33.5%	-2100bps
Free cash flow	$2.03B	—	$0.59B	+243.2%

Guidance

Guidance is issued for both next quarter and the full year. Both may appear below.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Subscription Revenue	Q4 FY2025	$3.42B - $3.43B	$3.466B	+$0.036B - $0.046B above guide	Beat
Subscription Revenue YoY Growth (constant currency)	Q4 FY2025	17.5% to 18%	21% (reported basis)	+3-3.5pts above guide	Beat
cRPO YoY Growth (constant currency)	Q4 FY2025	19%	22.5%	+3.5pts above guide	Beat
Operating Margin (non-GAAP)	Q4 FY2025	30%	31%	+100bps above guide	Beat
Subscription Revenue	FY2025	$12.835B - $12.845B	$13.278B	+$0.433B - $0.443B above guide	Beat
Subscription Revenue YoY Growth	FY2025	20.5%	21%	+50bps above guide	Beat
Operating Margin (non-GAAP)	FY2025	31%	31%	in-line	Beat
Free Cash Flow Margin (non-GAAP)	FY2025	34%	35%	+100bps above guide	Beat
Subscription Gross Margin (non-GAAP)	FY2025	83.5%	77.5%	-600bps below guide	Missed

New guidance

Metric	Period	Guide	YoY
Subscription Revenue	Q1 FY2026	$3.650B - $3.655B	18.5% to 19%
cRPO YoY Growth (constant currency)	Q1 FY2026	20%	—

Segment performance

Q4 FY2025

Segment	Q4 FY2025	YoY
Subscription revenues	$3.466B	+21.0%
Professional services and other	$0.102B	+13.0%

Platform metrics

Q4 FY2025

Segment	Q4 FY2025
Current Remaining Performance Obligations (cRPO)	$12.85 billion
cRPO YoY Growth	25% (21% constant currency)
Remaining Performance Obligations (RPO)	$28.2 billion
RPO YoY Growth	26.5% (22.5% constant currency)
Transactions over $1M net new ACV	244
Customers with >$5M ACV	603

Profitability

Q4 FY2025

Segment	Q4 FY2025
Non-GAAP Operating Margin	31%
Non-GAAP Free Cash Flow Margin	57%

Management tone

Q1 still-SaaS framing → Q2 "AI operating system" pivot → Q3 "Super 8" peer reclassification → Q4 "$1 trillion company in the making" with personal commitment to 2030.

The trajectory across the year has been a steady escalation of identity claims, and Q4 is the most aggressive yet. Two quarters ago McDermott was positioning ServiceNow as a category creator; last quarter he was reclassifying it alongside the Mag7 hyperscalers; this quarter he framed it as architecturally indispensable to enterprise AI infrastructure and personally extended his commitment through 2030. His anchor quote: "This is a $1 trillion company in the making. I can't fathom a better entry point for what ServiceNow is building." The personal-capital deployment signal (tenure extension, not just rhetoric) is unusual in enterprise software and reads as conviction underwriting a fresh guide that holds the cc growth line while stepping down gross margin 150bps to fund hyperscaler and AI infrastructure capacity.

The framing of AI itself has hardened from defensive to offensive across the four quarters. In Q2, management was rebutting the "AI will eat SaaS" thesis; in Q3, they were articulating the consumption flywheel mechanically; this quarter, McDermott went further: "AI doesn't replace enterprise orchestration. It depends on it. It depends on governance. It depends on scale." This is no longer defensive — it positions ServiceNow as a precondition for AI deployment rather than a counterparty to it. The Armis + Veza acquisitions sit underneath this framing as the visibility/identity layer of the same architectural claim.

The M&A posture has reversed across two quarters. Q3 carried open-ended M&A energy; this quarter management drew a firm line: "ServiceNow is fully capable of achieving previously stated subscription revenue and Now Assist ACV targets without M&A... We have never acquired a single company for revenue alone." Samana extracted the specific commitment that there is "no large-scale M&A on the roadmap" for 2026, which suggests management is responding to investor discomfort with the Moveworks/Armis/Veza cadence and explicitly closing the door on more.

The new note this quarter is the FY26 subscription gross margin guide of 82%, a 150bps step-down from FY25's 83.5% actual. Management's prepared explanation (data center investment for public cloud, geo, and AI) was unhedged and presented as a strategic choice. Borges (Goldman Sachs) was the only analyst to push directly on it; management's response — that the bulk of the headwind is hyperscaler-mix-driven rather than structural LLM cost, and is offset below the line by AI-driven efficiencies — frames this as a one-step reset rather than the start of a multi-quarter walk-down.

Recurring themes management leaned on this quarter:

AI agents and workflow orchestration as inseparable, harmonious platform strategyServiceNow as semantic layer and AI control tower for business reinventionPlatform consolidation of hundreds of feature-specific solutions into end-to-end processesSecurity visibility, identity governance, and orchestration as non-negotiable in agentic eraOrganic growth acceleration across emerging products (Now Assist, Workflow Data Fabric, Raptor, CPQ)Build-or-buy winner positioning—builders want data fabric/governance/security; buyers want AI-native workflows

Risks management surfaced:

AI adoption expanding attack surface exponentiallyEnterprise inability to see full digital estate (connected assets, unmanaged IoT, OT, medical devices)No coordinated remediation capability before vulnerabilities become breachesIdentity governance bottleneck preventing AI agent deployment at scaleMixed shift from on-prem to hosted revenue (near-term headwind Q1 2026)

Q&A highlights

Gabriella Borges · Goldman Sachs

Gross margin outlook and puts/takes; quantification of temporary versus structural headwinds from LLM costs, inference, and API calls

Management indicated bulk of gross margin headwind is strategic shift toward hyperscaler deals with slightly lower margins, offset by below-the-line efficiencies. Committed to best-in-class 20%+ top-line growth with continued margin accretion; increased operating margin guidance by 100bps and free cash flow guidance by another 100bps.

Operating margin guidance increased by 100 basis pointsFree cash flow guidance increased by additional 100bps (after 350bps increase this year)Gross margin headwind driven by hyperscaler mix shift, not structural LLM cost issuesMargins improve as hyperscaler deals scale

Samad Samana · Jefferies

M&A strategy going forward; clarification on whether Armis-sized deals are expected; financial details on Armis

Management clarified M&A is highly selective, focused on talent, technology, and moment; no large-scale M&A on roadmap post-MoveWorks, Armis, and Vesa. Armis expected to close H1 2026, contributing ~100bps to subscription revenue in 2026 with up to 50bps operating margin headwind. Integrated via Universal Agentic Network (UAN) using MCP protocol.

No large-scale M&A on roadmap for 2026Armis expected to close in H1 2026Expected subscription revenue contribution: ~100 basis points in 2026Expected operating margin headwind: up to 50 basis points in 2026

Peter Reed · AllianceBernstein

Details on partnerships with OpenAI and Anthropic; how ServiceNow decides which LLM partner to deploy; how partners are investing to drive customer traction

Management emphasized open ecosystem with customer choice across OpenAI, Anthropic, Google Gemini. Identified differentiated use cases: OpenAI for voice/speech-to-speech multimodal capabilities in CRM; Anthropic for coding agents via Claude underlying Anthropic's Build Agent. ServiceNow provides 90% of IP and context; model providers contribute 5-10%. Partnerships enhance go-to-market but do not threaten dominance.

Customer choice across OpenAI, Anthropic, Google Gemini modelsUnique use case for OpenAI: voice AI, speech-to-speech, real-time multimodal, multilingual capabilitiesUnique use case for Anthropic: coding agent (Claude/Build Agent) for workflow generation with ServiceNow context and governanceServiceNow provides ~90% of enterprise IP; model providers contribute ~5-10%

Patrick Walravens · JMP Securities

How ServiceNow addresses Fortune 500 enterprise concerns about agentic AI adoption: real-time agent monitoring, kill switches, grading agents, and red teaming

Management detailed AI Control Tower (launched early 2024) as solution for monitoring, kill switches, grading, and red teaming. Built on CMDB to track hardware, software, and AI agent assets. Enables real-time visibility, cost management, auditing, security. Removed adoption barriers by addressing control/governance/compliance fears. Example: consolidating 479 legacy tools at public sector entity into single ServiceNow instance.

AI Control Tower enables real-time monitoring of internal and third-party agentsKill switch capability to shut down rogue agentsRed teaming and security assurance built-inDeployed on single CMDB platform with full visibility across people, places, things

Answers to last quarter's watch list

Now Assist ACV print at year-end vs. the $500M run-rate signal — Mastantuono disclosed Now Assist surpassed $600M in ACV at year-end, tracking well toward the $1B+ FY26 target. Cleared the prior $500M run-rate signal and gave investors a hard FY25 closing figure.

Resolved positively

U.S. Federal NNACV in Q4 amid shutdown — The Q4 print beat the prior subscription guide by $36-46M and 244 $1M+ net new ACV transactions cleared comfortably, so any shutdown-related federal deal slippage was absorbed within the beat. Management referenced the full 40-day government approval cycle not being completed in 2025, which suggests some federal deals did push but did not pressure the overall print.

Resolved positively

Q4 cRPO cc growth vs. the +19% cc guide — cRPO came in at +21% cc, beating the cc guide by 200bps. The forward Q1 FY26 cRPO cc guide of +20% is a ~100bps step-down from the +21% just printed. Status: Resolved positively for Q4, watch the forward setup.

Moveworks close and reaffirmation of FY26 operating margin trajectory — FY26 operating margin guide of 32% represents +100bps of expansion vs. the FY25 actual of 31%, which is the margin framework investors were watching for. Moveworks closed December 15, 2025. Armis is now guided to close H2 2026 with a separate disclosed up-to-50bps operating margin headwind; Veza guided to close H1 2026. The FY26 margin guide currently excludes Armis.

Resolved positively

CRM Workflows / CPQ as a disclosed line item or ACV breakout — CPQ was called out as outperforming and CRM net new ACV "accelerated sequentially," but no discrete ACV breakout appeared in the print.

Not resolved

What to watch into next quarter

Q1 FY26 subscription revenue vs. the $3.650-3.655B guide and cRPO cc vs. the +20% guide — watch whether the cc cRPO number maintains the multi-quarter beat pattern (+250bps in Q2, +250bps in Q3, +200bps in Q4) or whether the beat compresses meaningfully.

Subscription gross margin trajectory toward the FY26 82% guide — the most-watched number on the forward setup. Watch whether Q1 prints near 82% or whether the public cloud / AI infrastructure ramp pulls gross margin lower in 1H before recovering.

Now Assist ACV cadence beyond the $600M FY25 print — watch the pace toward the formal $1B+ FY26 target and whether quarterly milestones are formalized.

Armis close (H2 2026) and Veza close (H1 2026) and the corresponding Q2 FY26 guidance refresh — the framework as currently guided excludes Armis; watch for the guide to reset for Armis's ~100bps subscription contribution and up-to-50bps OM headwind once timing firms.

Security revenue disclosure cadence after the +100% YoY Q&A datapoint — first time the company has put a hard growth number on security; watch whether this becomes a recurring disclosure or stays Q&A-only.

Sources

ServiceNow Q4 FY2025 earnings press release — https://www.sec.gov/Archives/edgar/data/1373715/000137371526000005/erq4fy25.htm
ServiceNow Q4 FY2025 earnings call — prepared remarks and Q&A (McDermott, Mastantuono, Zaveri).

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