AI business is accelerating, revenue is growing by more than 20%, yet ServiceNow $NOW is plunging 24%. What’s behind it?
The main reason is cRPO, or the value of contracts already signed that are expected to be recognized as revenue over the next 12 months. For software companies, it’s one of the most important indicators of future growth. In Q3, cRPO grew by 21% (at constant currency rates), but for Q4, management expects it to slow to 18.5%, while analysts were expecting approximately 19.7%.
And that’s where the problem lies. Revenue may look excellent today, but if growth in newly contracted revenue is slowing, investors start to worry about weaker growth in the coming quarters.
However, management pointed to several factors that distort the figures:
1. About half of the cRPO beat in Q3 came from contracts renewed early that were originally expected in Q4.
2. A higher share of government contracts running on customers’ own infrastructure reduces expected cRPO growth by 0.25 percentage points.
3. Some revenue from supporting AI deployments is recorded under professional services rather than subscriptions, reducing subscription revenue growth by approximately 0.5 percentage points in Q4.
On the other hand, the business itself is still delivering very strong results:
1. Revenue rose 20.5% to $4.11 billion.
2. The annual contract value of new AI deals rose by 65%.
3. Use of autonomous AI agents increased more than 13-fold.
4. The company raised its target for annual AI contract value from $1.5 billion to $1.7 billion.
5. For Q4, it expects subscription revenue growth of 22-23%.
So why such a negative reaction?
In addition to cRPO, adjusted EPS also disappointed, coming in slightly below expectations. And despite strong AI growth, the company raised its full-year subscription revenue outlook by just $15 million at the midpoint. In other words, the sharp rise in AI usage is not yet translating into overall financial results as significantly as the market expected.
Some of the slowdown in cRPO can be explained by the timing of contracts and accounting, so I don’t see it as any significant deterioration in the business. But weaker guidance and pressure on profitability shouldn’t be ignored either. ServiceNow is still growing very well, but investors simply expected more.
What matters now is whether cRPO reaccelerates in 2027 and whether growing AI usage starts to show up more noticeably in revenue.
What do you make of this drop? An overreaction or justified concerns?