ServiceNow Reports Strong Revenue Growth and AI Agent Strategy

(Bloomberg) — ServiceNow Inc. reported strong third-quarter sales and bookings as the software company expands its suite of AI tools.

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Subscription sales, which make up the majority of ServiceNow's revenue, rose 23% to $2.7 billion in the period, the company said in a statement Wednesday. The current remaining performance obligation, a measure of booked revenue, increased 26% in the period ended September 30. Both beat analysts' estimates.

The Santa Clara, California-based company makes applications that help companies organize and automate their human resources and information technology operations. Like its competitors, ServiceNow integrates generative AI capabilities into its products and offers a more expensive tier with these tools.

The company's flagship generative AI assistant product, Now Assist, is the fastest-growing in the company's history, Chief Executive Officer Bill McDermott said in an interview. The average contract premium for Now Assist users is 30%, he added.

Shares hit a record high in New York on Thursday, rising about 6%. Investors were initially unimpressed by the results, and the share price fell on Wednesday evening. Shares were up 28% this year through Wednesday's close. That's more than double the rally of the iShares Expanded Software ETF, which is often used as an industry benchmark.

The results “confirm the company's preeminent position in the enterprise software space,” wrote Tyler Radke, an analyst at Citigroup. He pointed to strong execution in a difficult environment for technology spending and early monetization of generative AI.

In recent weeks, ServiceNow and software rivals such as Salesforce Inc. and Microsoft Corp. began placing emphasis on AI “agents” that can complete tasks without user supervision. Some customers are already trying out ServiceNow's agents, which will be released more widely next month, McDermott said. Once the active ingredients are fully launched, their pricing will be different than other products, McDermott added.

For the current quarter that ended in December, ServiceNow forecast subscription revenue of about $2.88 billion, just above analysts' estimates. The company expects short-term bookings to increase 21.5%.

That booking forecast is effectively “good, but not great,” Evercore ISI analyst Kirk Materne said in a note. He added that the company tends to provide conservative guidance for the fourth quarter.

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