ServiceNow Earnings: Impact From Acquisitions Is a Near-Term Distraction From Good Fundamentals

Key Morningstar Metrics for ServiceNow

• : $165
• : ★★★★★

• Morningstar Economic Moat Rating

  : Narrow

• Morningstar Uncertainty Rating

  : High

What We Thought of ServiceNow’s Earnings

ServiceNow’s NOW first-quarter revenue grew by 19% year over year in constant currency to $3.77 billion, driven by broad-based demand. Non-GAAP operating margin was 31.8% for the quarter.

Why it matters: We characterize the results as good, with generally in-line guidance, but acknowledge some confusion around the impact of recent acquisitions on both first-quarter performance and outlook.

• Management described the outlook as strong and highlighted the upcoming organic revenue acceleration. This sounds great until we parse guidance, which ultimately calls for a larger-than-expected slowdown in backlog growth for the second quarter. The tough comparison from last year drives this.
• We do not think management is executing Salesforce’s playbook of acquiring growth, but we at least see a hint of it, which hurts in an environment where investors have indiscriminately sold software companies. The messaging seems to be an unforced error for an otherwise excellent team.

The bottom line: We maintain our fair value estimate for narrow-moat ServiceNow at $165 per share, based on guidance that was about as expected, given the inclusion of recent acquisitions. The stock is attractive and offers one of the best blends of growth and margins in software.

• Despite the noise, we see good fundamental performance under the surface, despite modest disruption from the delay of a few deals in the Middle East.
• Positives from the quarter include strength in all products, good backlog growth, artificial intelligence revenue tracking to a run rate of $1.5 billion, well ahead of the firm’s $1 billion goal for the year, robust cross-sell and upsell activity, and good traction from the now-integrated Moveworks acquisition.

Coming up: Management maintained its previous full-year 2026 outlook on an organic and constant currency basis. The Armis acquisition closed on April 20 and is included in guidance, which, along with Moveworks and Veza, creates some distortions in results and guidance.