ServiceNow Stock: A Deep Dive into the Company’s Q2 Earnings
ServiceNow (NYSE: NOW) recently reported its Q2 earnings, delivering excellent revenue growth despite the beaten-down stock. The company’s platform serves as the backbone of its customers’ entire software stacks, and it has shown no signs of its growth slowing down. In this article, we’ll delve into ServiceNow’s Q2 earnings, exploring the company’s strong growth in AI and cybersecurity offerings, as well as its subscription revenue surging 25% year over year.
The software-as-a-service (SaaS) company reported revenue of $3.99 billion in Q2, a 24% increase year over year. Its adjusted earnings per share (EPS) rose 11% to $0.90, surpassing the $0.86 in adjusted EPS and $3.93 billion in revenue that analysts were expecting. Subscription revenue climbed 25% year over year to $3.88 billion, while professional services revenue rose 9% to $110 million.
ServiceNow is seeing strength in several areas, including its AI annual contract value (ACV) surging 40% quarter over quarter to over $1 billion. The company is on track to hit $1.5 trillion by year-end, with its AI Control Tower already generating significant interest. This platform is designed to oversee every AI agent model running within an organization, while monitoring their performance and ensuring they follow governance rules. With its acquisitions of Armis and Veza, ServiceNow also has strong security protocols in place.
Another closely watched SaaS metric is remaining performance obligations (RPO), which is deferred revenue plus backlog growth. In the quarter, ServiceNow saw its RPO increase by 21% to $29 billion, while current RPO (cRPO) also increased by 21% to $13.2 billion.
Looking ahead, the company projected its Q3 subscription revenue to grow 20.5% to a range of $3.975 billion to $3.98 billion. It anticipates cRPO to increase by 19.5%. For the full year, the company raised its subscription revenue guidance to a range of $15.76 billion and $15.78 billion, representing growth of 22.5%. This was up from prior revenue guidance of $15.735 billion to $15.775 billion, representing growth of 22% to 22.5%.
While ServiceNow’s stock has been struggling, the company’s strong growth and guidance make a compelling case for investors. Trading at a forward price-to-sales (P/S) multiple of 5 based on 2027 analyst estimates and a forward P/E of 18, the stock looks undervalued for a company with a highly recurring business model and strong gross margins that is growing its revenue above 20%. However, valuation alone isn’t a reason enough to buy the stock.
ServiceNow appears to be doing all the right things, leaning into both AI and cybersecurity, and handling business as usual. Its AI Control Tower has strong potential to be a future growth driver, as the rise of AI agents should create a big need for agentic AI orchestration platforms. With its solution poised to be a top option, ServiceNow is well-positioned to capitalize on this trend.
In conclusion, ServiceNow’s Q2 earnings demonstrate the company’s strong growth and momentum. While the stock has been struggling, the company’s guidance and growth make a compelling case for investors. As ServiceNow continues to innovate and expand its offerings, it’s worth keeping an eye on the company’s progress.
