ServiceNow reported third-quarter revenue of $4.11 billion, with subscription revenue up 21%, but adjusted earnings missed estimates and shares fell more than 14% in after-hours trading on its fourth-quarter outlook.
ServiceNow reported third-quarter revenue of $4.11 billion on October 28, up from $3.41 billion a year earlier, for the quarter ended September 30. Subscription revenue was $3.99 billion, up 21%, and current remaining performance obligations, the contract revenue due to be recognised in the next 12 months, were $13.65 billion, up 20.5%. Total remaining performance obligations were $29.7 billion.
Profit did not follow revenue higher. GAAP net income fell to $277 million, or $0.27 per share, from $502 million, or $0.48 per share, a year earlier, and adjusted earnings per share were $1.00, two cents below the $1.02 analysts polled by FactSet expected. Revenue beat the $4.09 billion estimate, and the company guided fourth-quarter subscription revenue to $4.25 billion to $4.26 billion. It also raised its full-year free cash flow margin target by 100 basis points to 36% and its artificial intelligence annual contract value target for 2026 to $1.7 billion, up from $1 billion at the start of the year.
The company also announced an expanded partnership with OpenAI on the same day, including a ServiceNow plugin for ChatGPT, and a Control Tower Alliance of artificial intelligence, cloud, security and governance companies. Chairman and chief executive Bill McDermott described the quarter as an inflection point for the company as what he called the Super Intelligence Control Tower for business reinvention.
The company release gives the subscription, obligations and guidance figures, and Wall Street Journal reporting via TradingView corroborates the fall in net income and the revenue beat. The tension in the numbers is visible in the release itself: GAAP operating margin was 9.5%, against 17% a year earlier, even as subscription revenue grew 21%. Reports of after-hours trading put the shares down more than 14%, attributing the fall to the fourth-quarter outlook rather than to the third-quarter revenue line.
The reaction shows how the market is now judging enterprise software companies: not only on whether artificial intelligence contracts are growing, but on whether that growth survives into the next quarter's contracted revenue. The next check will be the fourth quarter, against the $4.25 billion to $4.26 billion subscription guidance, and whether the raised $1.7 billion artificial intelligence contract target is met by year end.