ServiceNow’s agentic AI push pays off with blowout earnings and strong revenue growth – News

The information technology service management software specialist ServiceNow Inc. delivered another strong earnings and revenue beat today as it posted its second-quarter results, sending its stock higher in extended trading.

The company reported earnings before certain costs such as stock compensation of $4.09 per share, trouncing the analysts’ target of $3.57 by a big distance. Revenue for the period rose 23% from a year earlier, to $3.22 billion, easily surpassing the consensus estimate of $3.12 billion.

The strong numbers meant ServiceNow continued to expand its profitability, and it posted a net income of $385 million in the quarter, up 47% from one year ago.

ServiceNow also posted subscription revenue, which makes up the bulk of its sales, of $3.11 billion, way ahead of the Street’s forecast of $3.03 billion.

Chairman and Chief Executive Officer Bill McDermott (pictured) said the results once again underline the company’s “elite-level” execution. “Our beat‑and‑raise quarter showcases the mission‑critical nature of the ServiceNow AI Platform,” he said. “Every business process in every industry is being refactored for agentic AI.”

ServiceNow has spent the last couple of years investing billions of dollars into AI, looking to position itself at the center of a new trend around “AI agents” that can automate various business processes and workflows with little to no human intervention. Its AI tools are used to provide intelligent recommendations, automate tasks and provide proactive support to business workers, among other things, with the goal being to boost productivity and enhance efficiency.

Valoir analyst Rebecca Wettemann told News that the latest results underscore the compelling case ServiceNow makes for its end-to-end approach to AI and workflows. She added that leaders in sales, service, finance, supply chain and human resources recognize that AI and workflows must span multiple applications and data sources to be effective, and they see ServiceNow as one of the best platforms to do that.

By leveraging end-to-end AI, ServiceNow is making strong inroads into areas such as customer relationship management, which is an industry dominated by Salesforce Inc., another company that’s betting big on AI.

“ServiceNow is clearly putting a target on Salesforce’s back,” Wettemann said. “We expect to continue to hear more about customer wins and how capabilities like Sales Order Management, CPQ, and front-office to back-office workflows are trojan horses for ServiceNow to expand its invasion into the CRM market.”

However, the real AI battleground at the moment is centered on AI orchestration and agent management, and that’s another area where ServiceNow excels, the analyst said.

“This is why ServiceNow and others are talking about supporting multiple LLMs and agents, and why it will be interesting to see how its new agentic workforce management announcement lands in the market,” Wettemann added. “With everyone from contact center to talent management to analytics to CRM vendors talking about how work between human and AI agents will be managed, evaluated and governed, the vendor that owns the management of agents will have a huge role in determining whose agents take on which workloads and what LLM costs they incur – giving them a big say on where the revenues flow.”

While agentic AI clearly brings significant opportunities for ServiceNow, it also introduces some risks for the company, said Holger Mueller of Constellation Research Inc.

“The opportunity is the chance to span traditional enterprise silos and link them together, but the risk is that those silos store the critical transaction data that enterprises run on,” Mueller said. “So it means enterprises must be willing to give ServiceNow a leg up in the race to dominate AI agents, and that might not sit well with all of them. I expect the next two-to-three quarters will show us how big of an impact it will have on agentic AI.”

During the quarter, ServiceNow kept up its rapid pace of innovation, announcing a revamped CRM platform and new AI tools that make it easier to deploy and manage AI agents, as well as a new family of agents focused on managing security and risk.

ServiceNow’s ongoing push into AI and AI agents is the key driving force behind its relentless growth, which was illustrated by its rising current remaining performance obligations – up 25% from a year earlier, to $10.92 billion. CRPO is a number that refers to the total value of revenue the company expects to generate from existing contracts over the next 12 months.

However, ServiceNow Chief Financial Officer Gina Mastantuono told analysts on a conference call that the company is expecting a 2% hit on its CRPO in the current quarter due to “seasonality” and the fact that more customers will come to renew their contracts in the final quarter. It also anticipates a small hit from some U.S. government agencies, which may face reduced budgets.

“While federal business is a bit uncertain today versus a year ago, we’re navigating it well, and we feel confident that our guidance reflects any potential changes that we’re seeing,” Mastantuono said.

That’s important, because the U.S. government is a major customer of ServiceNow. Last year, the company revealed that a single federal agency accounted for 11% of its total revenue.

Nevertheless, ServiceNow remains optimistic about the immediate future, and said it expects subscription revenue of between $3.26 billion and $3.27 billion in the current quarter, well ahead of the Street’s target of $3.21 billion.

Investors liked what they saw, and ServiceNow’s stock gained more than 7% in extended trading, erasing a slight loss from earlier in the day. But there’s more work to be done, for the company’s stock is still down 9% in the year to date.

Photo: SAP SE