Live: Will ServiceNow (NOW) Beat Q1 Earnings After the Bell?

ServiceNow took a question on how their agentic offerings compare to competitors on tonight’s call. This is a very important question to watch if you’re investing in the company, as the success of Control Tower will be critical for Salesforce’s future.

Brad Zelnick Deutsche Bank AG, Research Division

Great. Bill, we’ve been really impressed hearing from early adopters of Control Tower and how strategic it’s seen for enabling the deployment of agentic apps. But we also realized that the agentic orchestration is emerging as a very noisy and competitive space. How do you see ServiceNow’s differentiation evolving from here amidst all the noise?

William McDermott Chief Executive Officer

Yes. I’ll start and then Amit, by all means feel free to join in. We have data, and that data has been built over 22 years in this “ERP for IT” or that system of record. And as you know, we’ve expanded the boundaries end-to-end of what this platform can do. So think now about 95 billion workflows and more than 7 trillion transactions, getting trained at sub-second speed for everything that happens in an enterprise to that data. So the context and the context engine that we have built to be that AI control tower for business reinvention managing the humans and the agents and coalescing that in this unbelievable platform is what gives us the context advantage that nobody can match. And I just want to give you one sidecar.

Yesterday, we had the Board of Directors in, and we had one of the really great CIOs in the world. And she basically said, we are the control rail for all the key business processes that run through our global corporation. And she said that she would never even think about it. But if you think about the fractional cost that ServiceNow is to her IT budget. She would never even think about addressing that line item because it’s so important. But if you did, it would have to be at least 10x more expensive to even try to fix or change it. So there you have it. And Amit, please give some color on the differentiation.

Amit Zavery Co-President

Thanks, Bill. So — Brad, the way we think about this is that, one, we’re going beyond just orchestration. There’s a lot of context, as Bill mentioned, and we introduced something called Context Engine, which tracks not what decision was — what the decision was made, but why it was done. So it brings in a lot of information from the workflows and the the systems we’ve been running for many, many years already. Second, we’re also building out this idea of autonomous workforce. — You have a full AI specialist, which do the full task of which humans do today and replaces that with end-to-end capabilities.

So you don’t have to worry about orchestration, AI agent management, figuring out how to integrate them and do the whole heavy lift of security, compliance and control around it, right? With the iControl tower, you have the full visibility across an enterprise-wide while we give you the full capability of doing the actioning end to end, which is very different than just saying take pieces of technologies and build it yourself and figure out a way to orchestrate it.

We do provide our orchestration engine, which is very, very comparable to everybody else and very differentiated with the contact data. But we’re also up leveling that with a solution, an outcome-driven mindset. So it changes the game for a lot of our customers because they don’t have to worry about the heavy lift they have to do otherwise.

ServiceNow shares remain down, but the CEO William McDermott just had a quote that will almost certainly catch Wall Street’s attention tomorrow. Previously, ServiceNow had guided to $1 billion in AI revenue this year but took that number up to $1.5 billion on tonight’s call. Shares edged up after the quote, but are still down 11.9%.

Mark Murphy JPMorgan Chase & Co, Research Division

And just as a quick follow-up, it’s great to see the very clear AI traction that the business is carrying. Could you just comment on with the pricing changes and AI — less, I think Bill’s term was not a sidecar and embedded natively with the shift to the foundation in advance of time per — how will you measure and kind of derive that assist AI revenue stream? Just going forward under the new methodology. Is it simple and straightforward? Or do you have to make some new assumptions?

William McDermott Chief Executive Officer

Yes. I’m going to just give you one headline, Mark, at a respect for your great company and you personally that you might find interesting. Gina will be mad at me because it’s something we were hoping for or fat. But in the circumstances we operate in, I think disclosure is a good thing. We had a goal to be $1 billion on our AI commit this year, as you know. And I think we might have understated that a little bit. We’re already talking about $1.5 billion now, and it’s on a run. So, to specifically answer your question, I think it’s appropriate for Amit to give you some G2 on how we structured it and why we know it’s a winner. Amit?

Amit Zavery Co-President

Thanks, Bill. Mark, so the way we’re thinking about this, and we’ve announced our pricing capabilities is that, AI capabilities are in each of the SKUs now. And what we did with Pro Plus, which was a higher-end SKU with Assist are now available also for the foundation and advance Qs. So all of our products now have AI built in. And the incremental assist part of it was going to be counted as our AI revenue. So it’s pretty straightforward, very easy to measure, easy to track. There’s no confusion there. And we’re very clear that it’s only going to be AI part, which will count towards the AI revenue that we discuss going forward.

Gina Mastantuono Chief Financial Officer

So to be very clear, Mark, we have the exact same methodology, and we will continue to capture only the incremental contribution from the AI capabilities. And so that $1.5 billion that Bill talked about, we’re measuring the exact same way as we always measured. We’re just hitting our goals a lot quicker than we ever thought we would.

ServiceNow shares are bouncing back a little bit shortly before their call. Shares are now down 13%, which is a couple percent higher than where they traded at 4:30.

We will provide updates during ServiceNow’s conference call. To receive these updates, simply leave this page open and they will appear automatically. The call starts in five minutes and we expect three to four new updates across the next hour. 

Here’s an update on how stocks reporting earnings are performing:

• ServiceNow: Down 15% after EPS met expectations for Q1 and guidance points to deteriorating profitability.
• IBM: Down 6% despite a beat on EPS and revenue
• Tesla: Up 4% after beating EPS and reporting strong gross margins
• Lam Research: Up 2% after delivering strong revenue and EPS
• Texas Instruments: Up 9% as profitability rose strongly and the company reported strong guidance

In short, its a tough night for software stocks while companies exposed to the AI supply chain continue soaring.

ServiceNow shares are down 15% as of 4:27 p.m. ET.

Salesforce shares are down 5.9%.

Microsoft shares are down 1.1%.

Oracle shares are down 1.9%.

GitLab shares are down 2.1%.

It appears ServiceNow’s earnings are going to lead to a broad sell-off across software stocks tomorrow.

ServiceNow’s webcast will begin at 5 p.m. ET.

With the stock down more than 15% after-hours, their conference call is the remaining piece of information that could change sentiment before the market opens tomorrow.

ServiceNow’s CEO is known for being bold, but he has his work cut out for him explaining guidance next quarter. Wall Street is currently looking to hit the exits, we’ll see if any comments on the call can stem these losses.

As we noted earlier, its a swift and severe reaction to ServiceNow’s earnings. Here are some areas Wall Street is most concerned with:

1. Free Cash Flow Missed: The company delivered $1.665 billion in freec ash flow, which was 5% below expectations
2. Operating Income Guidance: This one is a big figure to watch, the company guided to operating income of $1.012 billion, which is 13% below expectations.
3. EPS for Q1: Finally, EPS for Q1 was $.97, which merely met expectations.

Pay attention to the company’s operating income guidance. Wall Street’s big concern is that SaaS companies will lose their pricing power as AI models improve in capability.

Companies that show any warning signs this is beginning will be heavily punished, which is what’s happening to ServiceNow after hours.

When I saw ServiceNow’s numbers hit the newswire, I winced. Software companies have had little margin for error in the recent environment, so merely meeting EPS expectations was likely going to cause a swift and severe reaction.

We’re seeing that right now with shares initially down 12%.

We’ll keep updating this live blog with analysis, but it apepars ServiceNow will give back most of its recent gains when the market opens tomorrow.

ServiceNow earnings just hit newswires, here’s what the key numbers they announced:

• Revenue: $3.770 billion
• EPS:$.97

And as a reminder, here’s what Wall Street expected:

• Revenue: $3.745 billion
• EPS:$.97

That’s a very slight beat on revenue while EPS figures are inline. Shares are initially plunging by 12%.

The market has closed for the day and ServiceNow shares ended the day up 2.93%.

We expect ServiceNow’s earnings to hit wires at about 4:10 p.m. ET. We will provide immediate analysis and key details from their earnings once they go live. 

ServiceNow earnings are expected to hit the newswires at 4:10 p.m. ET tonight.

It’s a busy night for earnings, beyond ServiceNow:

• Tesla is expected to report at 4:05 p.m.
• Lam Research is reporting at 4:05 p.m.
• IBM is reporting at 4:10 pm.

The other company ServiceNow investors may want to watch is IBM. That stock was initially an AI winner but has been sold off 15% year-to-date as investors continue rotating into hardware AI plays.

Once ServiceNow’s earnings go live, we’ll begin updating this live blog with news and analysis. Simply stay on this page and new updates will post automatically. 

ServiceNow’s stock is trading up 2.85% in late trading on Wednesday. Overall, shares are up about 24% since bottoming at $83 per share on April 10th. The iShares Expanded Tech-Software Sector ETF (BATS: IGV), which tracks software, is up 18% since that date as well.

In short, investors have rotated back into software ahead of this earnings season. We’ll see if ServiceNow delivers results impressive enough to sustain this recent rally in a little less than an hour.