ServiceNow reported third-quarter subscription revenue of $3,988 million, up 21% from a year earlier, with total revenue of $4,106 million, up 20.5%, and said it beat the high end of its guidance on every topline and profitability measure. The company raised its full-year outlook and lifted its 2026 AI contract target to $1.7 billion. Its shares nevertheless fell sharply in after-hours trading, as investors focused on slower contracted growth ahead.
The headline numbers
Current remaining performance obligations, the revenue ServiceNow expects over the next year, reached $13.65 billion, up 20.5% from a year earlier, while total obligations rose 22% to $29.7 billion. The company closed 19 deals worth over $5 million in net new contract value, up over 135%, and ended the quarter with 680 customers above it, up 23%.
Profitability told a story. GAAP net income fell to $277 million, or $0.27 per diluted share, from $502 million a year earlier, while non-GAAP operating margin reached 32.5% and non-GAAP earnings were $1.00 per diluted share. That non-GAAP figure came in two cents below the $1.02 consensus in coverage, a small miss that does not explain the share fall.
For the fourth quarter, ServiceNow guided subscription revenue of $4,245 million to $4,255 million, with a non-GAAP operating margin of 32%, and for the full year it guided subscription revenue of $15,780 million to $15,790 million. The company said it had reduced capital expenditure, which its finance chief linked to the capital-efficient model behind the higher cash-flow target.
AI is doing the growing
AI contract value grew 65% year on year, deals above $1 million grew four and a half times, and agentic AI consumption in production rose more than 13 times. CFO Gina Mastantuono said the AI target had been raised again this year, from $1 billion to $1.7 billion, and the company raised its free cash flow margin target to 36%.
The results arrived alongside a partnership with OpenAI, starting with a ServiceNow plugin for ChatGPT reached through Action Fabric, with planned security and risk solutions, a Codex integration and voice-driven governance. That partnership was announced this week, as covered in our report on ServiceNow putting ChatGPT to work, and the earnings release folds it into a governance pitch.
A control tower for other people’s agents
ServiceNow also announced the Control Tower Alliance, a new ecosystem for adopting enterprise AI safely at scale. Its founding members are Anthropic, Amazon Web Services, Cisco, HiddenLayer, Kong, NVIDIA, Okta, OpenAI, Stripe, WitnessAI and Zenity. The pitch is that ServiceNow governs agents built by others as well as its own, through discovery, visibility, control, measurement and compliance on one platform.
The alliance follows a Google Cloud partnership announced in October, connecting ServiceNow workflows into Gemini Enterprise so employees can complete governed actions without leaving the assistant. That earlier move, covered in our report on Gemini Enterprise running ServiceNow workflows, shows the strategy from the other side: ServiceNow wants to sit between the assistant and the work, whichever model answers.
Why It Matters
The quarter captures the tension in enterprise AI. ServiceNow beat its guidance, raised its AI target and still sold off, because the market looked past the quarter to fourth-quarter contracted growth guidance of 18.5%, below the third quarter’s 20.5%. For a company valued on durable subscription growth, a slowing forward indicator matters more than a beat on the quarter reported.
If the Control Tower bet works, that slowdown may prove temporary. A governance layer that enterprises trust could become the place where agent deployments are approved, measured and switched off, giving ServiceNow a toll position across vendors’ models. If it does not, the company risks being seen as another workflow vendor in a market where the models keep getting cheaper.
Background
ServiceNow sells an AI platform for enterprise workflows, from IT service management to customer service and human resources. Its chief executive, Bill McDermott, called the quarter an inflection point for the company as a control tower.
Source: company results and results coverage
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