Here's a classic earnings story: beat the numbers, talk up your growth, and watch the stock... drop 14%? That's what happened to ServiceNow Inc. (NOW) after the market closed Wednesday. The enterprise software company reported first-quarter results that topped analyst expectations, but a warning about deals getting pushed back in the Middle East seemed to be all anyone wanted to hear.
Let's start with the good news. ServiceNow posted Q1 revenue of about $3.77 billion, edging past the consensus estimate of $3.74 billion. Adjusted earnings came in at 97 cents per share, a penny better than the expected 96 cents. The company's total revenue grew 22% from a year ago, with subscription revenue—the core of its business—also jumping 22%.
The underlying metrics look strong, too. Remaining performance obligations, which is basically future revenue already under contract, hit $27.7 billion, up 25% year-over-year. And the company said customers spending over $1 million annually on its Now Assist AI products grew a whopping 130%.
"As new technologies create both opportunity and risk, our two decades of engineering combined with deep business context enable us to orchestrate and secure the agentic enterprise," said Bill McDermott, ServiceNow's chairman and CEO. "With this foundation, our AI growth is far exceeding even our own expectations, reinforcing our position as one of the fastest growing enterprise software companies ever."
So far, so good. The company also bought back about 20.1 million of its own shares during the quarter and still has $4.2 billion left on its buyback authorization. It even announced a deeper strategic partnership with Google Cloud to roll out new AI solutions.
The Catch: Geopolitics and Guidance
Then we get to the part that likely spooked investors. In its outlook, ServiceNow said that in Q1, "subscription revenue growth saw an approximately 75 basis point headwind from delayed closings of several large on-premise deals in the Middle East, due to the ongoing conflict in the region."
Translation: Some big-ticket contracts got pushed back because of the fighting over there, and it shaved about 0.75% off their subscription growth rate for the quarter.
The company's guidance for what comes next seems to bake in more of the same caution. For the second quarter, ServiceNow expects subscription revenue between $3.815 billion and $3.82 billion, representing growth of about 21% to 21.5%. For the full year 2026, it sees subscription revenue in the range of $15.74 billion to $15.78 billion.
"This outlook reflects a prudent assessment of those geopolitical headwinds on deal timing for the remainder of FY 2026," the company stated. In investor-speak, "prudent assessment" often means they're being conservative because they're not sure when things in the Middle East might stabilize enough for those delayed deals to finally close.
The Market's Verdict: A Sharp Sell-Off
Investors reacted swiftly to the mix of strong current results and cautious future commentary. ServiceNow shares were down 14.23% in after-hours trading, changing hands at $88.40 at the time of publication.
It's a reminder that for high-growth, high-multiple software stocks, the narrative about future growth can sometimes matter more than a quarterly earnings beat. A 75-basis-point headwind might not sound huge, but it introduces an element of uncertainty—and the market hates uncertainty, especially when it's tied to something as unpredictable as geopolitics.
ServiceNow executives will have a chance to provide more color and perhaps calm some nerves on the earnings call scheduled for 5 p.m. ET. They'll need to convince investors that the AI-driven growth story remains intact and that the Middle East delays are just a timing issue, not a sign of deeper demand problems. For now, the stock chart is telling a clear, if painful, story.
