Latest / Beta Finch - ServiceNow - NOW - EN / ServiceNow Q4 2025 Earnings Analysis

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ServiceNow Q4 2025 Earnings Analysis · Beta Finch - ServiceNow - NOW - EN

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  Speaker 1: Welcome to Beta Finch, your AI powered earnings breakdown. I'm
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  Speaker 1: and I'm here with my co host.
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  Speaker 2: To dive into Service Now's Q four two twenty five results.
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  Speaker 2: This podcast is AI generated content for educational and entertainment
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  Speaker 2: purposes only. Nothing we discuss should be considered investment advice.
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  Speaker 2: Always do your own research and consult a qualified financial
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  Speaker 2: advisor before making any investment decisions.
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  Speaker 1: And wow, what a quarter Service Now just delivered. CEO
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  Speaker 1: Bill McDermott came out swinging right from the opening remarks,
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  Speaker 1: essentially saying, here are the facts to counter what he
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  Speaker 1: called speculation everywhere. This feels like a company that's tired
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  Speaker 1: of being misunderstood by the market. Absolutely, let's start with
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  Speaker 1: the numbers, because they're pretty impressive. Q four subscription revenue
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  Speaker 1: hit three point four seven billion dollars, growing nineteen point
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  Speaker 1: five percent year over year in constant currency. That's one
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  Speaker 1: hundred and fifty basis points above the high end of
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  Speaker 1: their guidance. And their remaining performance obligations or RPO grew
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  Speaker 1: twenty one percent to over twenty eight billion dollars.
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  Speaker 2: What stood out to you? The acceleration story is huge.
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  Speaker 2: Here NET new annual contract value growth actually accelerated both
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  Speaker 2: quarter over quarter and year over year. That's not something
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  Speaker 2: you see often in mature software companies. And get this,
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  Speaker 2: they had two hundred forty four deals greater than one
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  Speaker 2: million dollars in net new ACV, including seven deals over
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  Speaker 2: ten million dollars. That suggests enterprises are making serious platform
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  Speaker 2: bets on service Now.
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  Speaker 1: Right, and let's talk about their AI momentum. Now Assist
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  Speaker 1: their AI product suite surpassed six hundred million dollars in
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  Speaker 1: ac and is tracking toward their one billion dollar target
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  Speaker 1: for twenty twenty six. McDermott mentioned they had thirty five
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  Speaker 1: deals over one million dollars for now Assist in Q
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  Speaker 1: four alone, with some customers expanding their AI usage by
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  Speaker 1: thirteen times upon renewal.
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  Speaker 2: That renewal expansion story is fascinating. CFO Gina Mustntono mentioned
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  Speaker 2: that customer service now Assists deals saw over seventy percent
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  Speaker 2: upsell expansion at renewal in Q four. This suggests customers
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  Speaker 2: aren't just trying AI, they're getting real value and wanting more.
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  Speaker 2: It's moving from proof of concept to production scale.
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  Speaker 1: Now, let's address the elephant in the room, the recent
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  Speaker 1: acquisitions Service Now has been busy acquiring move Works and
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  Speaker 1: announcing plans to acquire Visa and Arms. McDermott was pretty
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  Speaker 1: defensive about this, pushing back against speculation that M and
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  Speaker 1: A was driven by necessity.
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  Speaker 2: He was very clear about their strategy here. McDermott emphasized
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  Speaker 2: they've never acquired for revenue alone, and these acquisitions are
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  Speaker 2: about expanding their total addressable market to over six hundred
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  Speaker 2: billion dollars. The story he's telling is about creating an
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  Speaker 2: AI control tower for enterprises, combining visibility from Arms, identity
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  Speaker 2: governance from Visa, and orchestration from service Now's platform.
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  Speaker 1: The security angle is interesting. Their security and risk business
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  Speaker 1: already generates over one billion dollars in ACV and grew
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  Speaker 1: nearly forty percent year over year. With these acquisitions, they're
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  Speaker 1: essentially saying they want to be the comprehensive security platform
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  Speaker 1: for what they call the agentic AI world, where AI
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  Speaker 1: agents are running business processes autonomously.
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  Speaker 2: Speaking of autonomous AI, I love McDermott's explanation of why
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  Speaker 2: AI needs workflow orchestration. He said AI is probabilistic, meaning
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  Speaker 2: uncertain outcomes, while workflow orchestration is deterministic, predictable and government.
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  Speaker 2: That's actually a compelling argument for why AI doesn't replace
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  Speaker 2: platforms like Service Now, but rather depends on them.
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  Speaker 1: The customer examples were pretty compelling too. One stood out
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  Speaker 1: where a consumer services company achieved four hundred percent ROI
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  Speaker 1: and needed eight times more AI assists after a year.
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  Speaker 1: They're flipping from eighty percent human lad support to eighty
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  Speaker 1: percent automated. That's the kind of business transformation that creates sticky,
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  Speaker 1: expanding relationships.
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  Speaker 2: And let's talk margins for a second. Despite all this
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  Speaker 2: AI investment, they're maintaining discipline. Operating margin was thirty one
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  Speaker 2: percent of one hundred basis points a year over year,
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  Speaker 2: and they're guiding to thirty two percent for twenty twenty six.
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  Speaker 2: Free cash flow margin hit thirty five percent, also up significantly.
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  Speaker 2: This isn't growth at any cost. They're proving AI can
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  Speaker 2: drive both growth and efficiency.
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  Speaker 1: The guidance for twenty twenty six is solid too, nineteen
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  Speaker 1: point five percent to twenty percent of stars scryption revenue growth,
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  Speaker 1: which at their scale is impressive. But McDermott made a
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  Speaker 1: point of saying, we don't set our sites on hitting
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  Speaker 1: the guide. We set our sites on beating it. Given
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  Speaker 1: their track record, that confidence seems warranted.
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  Speaker 2: One thing that caught my attention into Q and A
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  Speaker 2: was the discussion about pricing models. An analyst asked whether
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  Speaker 2: they'd move completely away from seat based pricing to consumption
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  Speaker 2: amid savery. Their chief product officer said, customers want both
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  Speaker 2: flexibility and predictability, so their hybrid model is working well.
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  Speaker 1: That makes sense. The monthly active user count grew twenty
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  Speaker 1: five percent, which counters the seat compression narrative. Some have
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  Speaker 1: worried about it seems like as they add AI capabilities,
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  Speaker 1: they're actually expanding usage rather than replacing human workers entirely.
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  Speaker 2: The partnership announcements with OpenAI and Anthropic are strategically interesting too.
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  Speaker 2: Rather than competing with these foundation model providers, service now
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  Speaker 2: is positioning its as the enterprise orchestration layer. They're essentially saying,
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  Speaker 2: we'll use the best models, but we provide the business context,
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  Speaker 2: governance and workflow automation.
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  Speaker 1: Looking at the stock reaction and McDermott's comments, it seems
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  Speaker 1: like there's a disconnect between service Now's performance and how
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  Speaker 1: the market values them. He mentioned they're not living in
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  Speaker 1: a SaaS neighborhood, but are a platform company executing a
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  Speaker 1: long term platform strategy.
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  Speaker 2: That platform argument is key. They're not just selling software features,
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  Speaker 2: They're becoming the fabric that connects AI, data, security, and
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  Speaker 2: business processes. If that vision plays out, the one trillion
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  Speaker 2: dollar market cap McDermott mentioned might not be as crazy
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  Speaker 2: as it sounds.
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  Speaker 1: What's your take on the investment thesis going forward?
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  Speaker 2: I think service now is making a compelling case that
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  Speaker 2: their position to benefit from multiple trends AI adoption, security concerns,
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  Speaker 2: digital transformation, and enterprise place platform consolidation. The financial execution
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  Speaker 2: has been consistently strong, and the AI traction seems real,
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  Speaker 2: not just high. The question is whether the market will
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  Speaker 2: start valuing them more like a platform company than a
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  Speaker 2: traditional SaaS business.
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  Speaker 1: The balance sheet is certainly strong enough to execute their vision,
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  Speaker 1: over ten billion dollars in cash, and they just authorized
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  Speaker 1: another five billion dollar share repurchase program with an immediate
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  Speaker 1: two billion dollar buy back. That shows confidence in their prospects.
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  Speaker 2: Everything discussed today is AI generated analysis for educational purposes.
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  Speaker 2: Past performance doesn't guarantee future results. Please do your own
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  Speaker 2: due diligence.
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  Speaker 1: Service Now's Q four results suggest they're successfully navigating the
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  Speaker 1: AI transformation while maintaining the discipline that made them successful.
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  Speaker 1: Whether they can achieve McDermott's ambitious vision remains to be seen,
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  Speaker 1: but the early indicators are promising. Thanks for listening to
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  Speaker 1: Beta fans. We'll be back with more AI powered earnings
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  Speaker 1: analysis soon.
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  Speaker 2: Until next time, keep those portfolios diversified and those expectations realistic.
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  Speaker 1: That's all for today's earnings analysis. If you found this helpful,
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  Speaker 1: Thanks for listening.