The Software as a Service (SaaS) industry has been in shambles, and right now these companies can’t do anything right in the eyes of investors. Service now (NYSE: NOW) became the latest example of this, with its shares falling despite reporting strong fourth-quarter results and issuing optimistic guidance.
ServiceNow is becoming an early artificial intelligence (AI) company, and its suite of generative AI solutions, Now Assist, continues to be a growth driver, reaching an annual contract value (ACV) of $600 million. It will look to grow to over $1 billion by the end of 2026. Meanwhile, it is in the process of acquiring AI cybersecurity companies Armis and Veza to help bring together security and AI capabilities. With its AI Control Tower platform, it also seeks to become an orchestration platform for agent AI.
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For the fourth quarter, ServiceNow’s revenue increased 20.5% year over year to $3.57 billion, while adjusted earnings per share (EPS) increased 26% to $0.92. This beat the consensus of analysts, who were expecting earnings per share of $0.88 on revenue of $3.53 billion, as compiled by the LSEG. Subscription revenue increased 21% year over year to $3.47 billion, while professional services revenue increased 13% to $102 million.
Another popular SaaS metric is remaining performance obligations (RPO), which is deferred revenue plus backlog growth. This measure is closely watched as it can be an indicator of future revenue growth. In the quarter, the company saw RPO increase 26.5% to $28.2 billion, while current RPO (cRPO) increased 25% to $12.85 billion.
Looking ahead, the company forecasts its first-quarter subscription revenue will grow 21.5% to a range of $3.65 billion to $3.655 billion. It anticipates cRPO will increase by 22.5%. For the full year, it projected subscription revenue of between $15.53 billion and $15.57 billion, representing growth of 20.5% to 21%.
ServiceNow shows no signs that AI is negatively impacting its business, and its CEO specifically said on the company’s earnings call that AI will not “replace enterprise orchestration” and that it is a huge opportunity. Meanwhile, the company’s unified data system and structured workflows should make it an ideal environment for AI and a launch pad for AI agents. At this point, the business is doing well, but the stock is not. However, the opportunity is still there.