ServiceNow shares fall 23% after Q4 current RPO growth guidance of 18.5%
Key Facts
ServiceNow shares fell 23% during trading on October 29 and were headed for their largest daily decline on record after the company guided to current remaining performance obligations (cRPO) growth of 18.5% in Q4 2026. The guidance was below the 20% consensus estimate, according to an estimate cited by Morgan Stanley. The company reported Q3 results on October 28, posting growth in subscription and total revenue. But its cRPO outlook, which reflects contracted revenue expected to be recognized over the following twelve months, appeared weaker than investors had expected. The shares closed at $109.67 on October 29, compared with $150.13 in the previous session.
Subscription revenue totaled $3.988 billion in Q3, up 21% year over year, while total revenue reached $4.106 billion, up 20.5%, according to the company's results. Current remaining performance obligations stood at $13.65 billion on September 30, up 20.5% year over year. The company defines this metric as the value of contracted revenue it expects to recognize over the following twelve months. The gap between the metric's Q3 growth and Q4 guidance points to an expected slowdown in the pace of obligations growth, even as reported revenue continues to rise. The company set Q4 subscription revenue at between $4.245 billion and $4.255 billion, with constant-currency growth of 21.5% year over year.
Brokerages cut their share-price targets after the announcement; Reuters reported that at least 12 firms had lowered their targets by October 29. Morgan Stanley cut its target to $160 from $180, noting that the 18.5% obligations growth guidance compared with 20% consensus and 21% growth in Q3 on a constant-currency basis. BMO Capital also cut its target to $155 from $165, while maintaining its Outperform rating, and said the guidance came in about 50 basis points below its expectations. Reuters described concerns around the sector as the possibility that new AI models could disrupt traditional software business models. The S&P 500 Software and Services Index had risen only 5% from the start of the year through October 29, less than half the broader index's gains, according to Reuters.
ServiceNow, meanwhile, said demand for its AI products is supporting its business targets. It raised its 2026 annual contract value target for AI to $1.7 billion, from a $1 billion target at the start of the year. The company said net new AI contracts exceeded expectations and that customers' year-to-date production consumption of agentic AI had increased more than 13-fold year over year. It also raised its full-year 2026 free cash flow margin target by 100 basis points to 36%. This puts indicators of AI product adoption and obligations expectations on different trajectories: rapid growth in agent use and new contracts, against guidance for obligations growth in the coming quarter that was weaker than market consensus. For Q4, the company set its non-GAAP operating margin at 32%.
Among the company's next announced appearances, Chief Financial Officer Gina Mastantuono will participate in the Wells Fargo Technology, Media and Telecom Conference on December 8, 2026, at 12:45 p.m. Pacific time, followed by the Barclays Technology Conference on December 9 at 11:40 a.m. Pacific time. The appearances come after the release of Q3 results and Q4 guidance, as investors look for further indications of the path of obligations growth and customer demand for AI products. The company had linked its higher annual AI contract target to new contracts exceeding its expectations. It also reported increased customer use of agentic AI in production environments. Comparing these indicators with obligations expectations remains a key focus in assessing the next guidance.