ServiceNow shares tumbled on Thursday following third-quarter results that underwhelmed Wall Street with slowing contract backlog growth and an adjusted earnings miss, despite total revenue climbing 20% to $4.11 billion and management raising its full-year artificial intelligence sales target.
ServiceNow Revenue Grows 20% as Earnings Miss Forecasts
ServiceNow reported total third-quarter revenue of $4.11 billion, marking a 20% increase year-over-year that came in slightly ahead of the $4.09 billion forecast from analysts. Subscription revenue reached $3.988 billion, representing 21% growth from the same period last year. Total Q3 revenues hit $4,106 million according to Diginomica figures, while net income dropped to $277 million from $502 million. In the third quarter of 2026, the firm recorded 20.5% year-on-year growth on its revenue, while non-GAAP earnings per share rose 4%.
Despite the top-line beat, adjusted earnings came up short at $1.00 per share, missing the consensus estimate of $1.02 by $0.02, or about 2.0%. GAAP earnings per share stood at $0.27, down from $0.48 in the prior-year period.
During the Q3 2026 earnings conference call hosted by Darren Yip, Senior Vice President of Investor Relations and Market Insights, leadership detailed performance metrics across multiple operating segments. Short-term receivables increased by 20% to $13.65 billion, while long-term receivables rose 22% year-over-year to $29.7 billion. The enterprise software provider ended the quarter with 680 customers generating more than $5 million in annual contract value, alongside 31 additional customers surpassing $20 million in annual contract value over the past year. Nineteen of the top 20 deals included six or more products, while deals above $5 million in net new annual contract value grew 135% year-over-year to 19 transactions.
Investors React To Contract Backlog Guidance
The market punishment was swift. ServiceNow shares closed Thursday’s regular session down 3% at $150.13 before plunging another 17.11% in after-hours trading to $124.45, sinking 19.6% to about $121 in premarket trading. By Thursday morning, the stock had fallen roughly 25%, marking its worst single-day drop since the company went public in 2012.
Analysts pointed to the company’s forward guidance as the primary catalyst for the selloff. ServiceNow guided fourth-quarter current remaining performance obligations (cRPO) growth down to 18.5% in constant currency, coming in below the roughly 19.8% analysts expected. Citi analyst Tyler Radke told CNBC that the lack of immediate upside was uncharacteristic for the company.
This was a little bit uncharacteristic for ServiceNow standards, just in terms of the lack of upside.
Tyler Radke, analyst at Citi, via CNBC
Mastantuono explained to analysts that the softer cRPO outlook stemmed from several accounting and operational nuances. Strong early renewals in the third quarter pulled deals out of the fourth quarter, accounting for about half of the Q3 beat. An increase in on-premises public sector deals created a 25-basis-point drag, and some contracts included clauses allowing customers to cancel for convenience, leaving about 50 basis points of backlog growth out of cRPO calculations. Additional headwinds included deployment services bundled into select large AI deals, which were carved out of subscription revenue into professional services, creating a 25-basis-point impact in the third quarter and an estimated 50-basis-point impact in the fourth quarter.
Management Raises Artificial Intelligence Targets
Management highlighted accelerating momentum in artificial intelligence adoption. The number of AI deals exceeding $1 million grew 4.5 times year-over-year, while agentic AI consumption in production climbed more than 13 times year-over-year. The company also expanded its partnership with OpenAI to enable enterprises to move smoothly from AI reasoning to governed action via a new plugin for ChatGPT enabled by Action Fabric, while maintaining control integrations across Okta, Microsoft Azure AI Foundry, and Google Gemini Enterprise Agent Platform.
Concurrently, management raised its full-year 2026 free cash flow margin target to 36% from 35%, driven by lower capital expenditures.
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