ServiceNow (NOW) Up 41.1% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for ServiceNow (NOW). Shares have added about 41.1% in that time frame, outperforming the S&P 500.

But investors have to be wondering, will the recent positive trend continue leading up to its next earnings release, or is ServiceNow due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its latest earnings report in order to get a better handle on the important catalysts.

NOW Q2 Earnings Beat Estimates, Revenues Rise Y/Y

ServiceNow reported second-quarter 2026 earnings of 90 cents per share, up 11.1% year over year. The figure beat the Zacks Consensus Estimate by 4.65%. 

Revenues of $3.99 billion rose 24% year over year and surpassed the consensus mark by 1.65%. Results benefited from strong subscription demand, while current remaining performance obligations (cRPO) reached $13.20 billion.

NOW Gains From Broad Subscription Momentum

Subscription revenues increased 24.5% year over year to $3.88 billion. At constant currency (cc), subscription revenues rose 23%, 150 basis points (bps) above the high end of management’s guidance. 

Professional services and other revenues advanced 8.5% to $110 million. 

ServiceNow attributed the subscription outperformance to stronger net new annual contract value (NNACV) and a higher on-premise revenue mix, primarily from U.S. federal demand that shifted some revenues from the third quarter into the second quarter.

ServiceNow Builds Backlog and Expands Large Deals

In the second quarter of 2026, cRPO, or contracted revenues expected to be recognized within 12 months, grew 21% year over year. At cc, the metric increased 21.5%, exceeding guidance by 200 bps. Total remaining performance obligations (RPO) rose 21% year over year to $29 billion, or 22% at cc.

NOW recorded 123 transactions exceeding $1 million in NNACV, up nearly 40% year over year. The company ended the quarter with 658 customers generating more than $5 million in annual contract value, an increase of roughly 23%.

NOW’s AI and Workflow Portfolio Gains Traction

ServiceNow AI annual contract value crossed $1 billion. Net new AI annual contract value grew more than 40% sequentially, while deals containing at least five ServiceNow AI products increased 5.5 times year over year. The number of customers with Agentic AI in production expanded ninefold over the past nine months.

Demand was broad across workflows. ITSM appeared in 15 of the top 20 deals, ITOM in 18 and security and risk solutions in 16. CRM and industry workflows were also included in 16 of the top 20 deals, supported by momentum in configure-price-quote and sales and order management.

ServiceNow’s Operating Details

Non-GAAP total gross margin was 78%, down from 81% a year earlier. Subscription gross margin contracted 250 bps to 80.5%.

Non-GAAP operating income rose 22.8% year over year to $1.17 billion. Operating margin was unchanged at 29.5% and came in 300 bps above guidance due to revenue outperformance and the timing of spending, mainly in marketing.

NOW Generates Cash and Maintains Liquidity

ServiceNow ended the second quarter of 2026 with $2.50 billion in cash and cash equivalents. Current and long-term marketable securities totaled $4.20 billion. 

Net cash provided by operating activities was $587 million, compared with $716 million in the year-ago quarter. Free cash flow increased to $634 million from $535 million, while free cash flow margin slipped 50 bps to 16%.

ServiceNow Raises 2026 Subscription Outlook

For the third quarter of 2026, NOW expects subscription revenues between $3.975 billion and $3.980 billion, implying 20.5% year-over-year growth and 20% growth at cc. cRPOs are projected to increase 19.5%, or 20% at cc. Non-GAAP operating margin is expected to be 31%.

For 2026, ServiceNow raised its subscription revenue guidance to $15.76-$15.78 billion from $15.735-$15.775 billion. The midpoint increased by $15 million. The updated range represents 22.5% year-over-year growth and 21% growth at cc.

The company continues to expect an 81% non-GAAP subscription gross margin, a 31.5% non-GAAP operating margin and a 35% free cash flow margin for 2026. 

ServiceNow noted that stronger AI adoption and greater use of hyperscaler partnerships are reflected in the gross-margin outlook.

How Have Estimates Been Moving Since Then?

Since the earnings release, investors have witnessed a downward trend in fresh estimates.

The consensus estimate has shifted -6.01% due to these changes.

VGM Scores

At this time, ServiceNow has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock has a score of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise ServiceNow has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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This article originally published on Zacks Investment Research (zacks.com).

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