Latest / Beta Finch - ServiceNow - NOW - EN / ServiceNow Q2 2026 Earnings Analysis

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ServiceNow Q2 2026 Earnings Analysis · Beta Finch - ServiceNow - NOW - EN

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  Speaker 1: Welcome to Beta Finch, your AI powered earnings breakdown for
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  Speaker 1: the company's moving the market. Today. We're digging into service
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  Speaker 1: Now's second quarter twenty twenty six results, and this podcast
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  Speaker 1: is AI generated content for educational and entertainment purposes only.
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  Speaker 1: Nothing we discuss should be considered investment advice. Always do
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  Speaker 1: your own research and consult a qualified financial advisor before
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  Speaker 1: making any investment decisions.
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  Speaker 2: And Alex this was a genuinely loaded call. Bill McDermott
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  Speaker 2: came out swinging, comparing service Now's trajectory to a seven
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  Speaker 2: year old prediction that they'd be the defining enterprise software
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  Speaker 2: company of the twenty first century. Bold claim, but the
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  Speaker 2: numbers actually back it up. This quarter.
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  Speaker 1: Let's start with the headline stuff. Subscription revenue hit three
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  Speaker 1: point eight seven seven billion dollars, up twenty three percent
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  Speaker 1: year over year in constant currency. That's a full point
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  Speaker 1: and a half above the high end of their own guidance.
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  Speaker 1: Current RPO, which is basically their forward looking bookings number
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  Speaker 1: came in at thirteen point two billion dollars, up twenty
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  Speaker 1: one point five percent, beating guidance by two hundred basis points.
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  Speaker 2: An operating margin at twenty nine point five percent, three
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  Speaker 2: points above guidance. That's the kind of beat and rays
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  Speaker 2: quarter that gets analysts excited. They also had one hundred
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  Speaker 2: and twenty three deals over one million dollars in net
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  Speaker 2: new ACV up forty percent year over year. This wasn't
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  Speaker 2: a company squeaking by. It was out performance across literally
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  Speaker 2: every metric they guided to.
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  Speaker 1: The AI story is really what everyone wants to talk about.
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  Speaker 2: Though.
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  Speaker 1: Service Now AIACV crossed one billion dollars this quarter and
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  Speaker 1: they're still tracking toward their one point five billion dollar
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  Speaker 1: target by end of year. Gina Mastanchwono, the CFO, said
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  Speaker 1: net new AIACV growth accelerated over forty percent quarter over quarter.
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  Speaker 2: What stood out to me is the adoption data. The
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  Speaker 2: number of customers with agentic ai actually in production has
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  Speaker 2: grown nine x in the last nine months. In first
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  Speaker 2: time agentic ai buyers. Among renewal customers doubled both quarter
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  Speaker 2: over quarter and year over year. That's not just existing
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  Speaker 2: customers upgrading. That's genuinely new demand entering the funnel.
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  Speaker 1: Let's talk cybersecurity, because Bill spent a shocking amount of
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  Speaker 1: airtime on this. He said, Service now is security. Business
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  Speaker 1: is now the fastest growing among the top ten cyber
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  Speaker 1: companies built on the recent Armis and Visa acquisitions layered
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  Speaker 1: on top of their existing risk and compliance business.
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  Speaker 2: Right and the framing was interesting. Visa handles identity across humans, machines,
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  Speaker 2: and AI agents, while Armis tracks physical devices, already monitoring
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  Speaker 2: seven billion of them in real time. Bill's pitch is
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  Speaker 2: that as AI agents proliferate, he cited a stat of
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  Speaker 2: two point two billion new AI identities entering the enterprise,
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  Speaker 2: someone needs to govern all of it. That's their AI
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  Speaker 2: control tower pitch. Essentially a command center for visibility across
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  Speaker 2: every AI system, native or third party.
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  Speaker 1: It's a smart positioning move. Instead of competing directly with
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  Speaker 1: the hyperscalers or the model abs, they're saying, we don't
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  Speaker 1: care who wins the AI race. Where the governance layer
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  Speaker 1: everyone needs regardless.
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  Speaker 2: There is also real color on the CRM side, which
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  Speaker 2: people forget. Service Now is even in It's now a
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  Speaker 2: two billion dollar ACV business. An average deal size doubled
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  Speaker 2: year over year. The standout anecdote was a large airline
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  Speaker 2: running voice AI customer service through Service Now, handling five
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  Speaker 2: million annual calls already.
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  Speaker 1: In year one on the Analyst Q and a Tyler
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  Speaker 1: Racky from City pushed on something worth flagging for listeners.
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  Speaker 1: The full year revenue guidance raise was actually pretty modest
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  Speaker 1: relative to how strong second quarter looked. Gina explained that
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  Speaker 1: roughly half of the second quarter beat was just timing
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  Speaker 1: some federal on prem revenue pulled forward from third quarter
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  Speaker 1: into second quarter, and she said she's being deliberately conservative
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  Speaker 1: on the back half.
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  Speaker 2: That's a good example of reading past the headline beat.
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  Speaker 2: It's not that the underlying business is weaker than it looks.
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  Speaker 2: It's that management is choosing caution given the broader macro
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  Speaker 2: uncertainty around enterprise spending. Worth noting they still raised full
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  Speaker 2: year subscription revenue guidance to fifteen point seventy five to
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  Speaker 2: five dollars to fifteen point seven seven zero billion dollars,
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  Speaker 2: about twenty one percent constant currency growth.
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  Speaker 1: There was also a question about sales headcount ballooning, and
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  Speaker 1: Gina was upfront that it's a mix of three things.
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  Speaker 1: Inherited talent from the move works, Visa and Armis acquisitions,
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  Speaker 1: deliberate investment ahead of the security ramp, and general growth hiring.
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  Speaker 1: Bill added a commitment that by twenty twenty seven they'll
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  Speaker 1: be back to pre acquisition headcount levels even after absorbing
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  Speaker 1: three companies, which should help operating margin continue expanding.
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  Speaker 2: One thing I want to flag for listeners tracking valuation
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  Speaker 2: and margin trends, gross margin guidance tick down slightly, and
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  Speaker 2: that's actually a good news problem. It's driven by more
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  Speaker 2: customers using Hyperscaler infrastructure and heavier AI consumption, both signs
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  Speaker 2: of adoption. Management was clear that operating margin stayed flat
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  Speaker 2: despite that pressure, and they expect the cost curve to
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  Speaker 2: improve as Hyperscaler volume scales.
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  Speaker 1: For the fiscal year, they're now guiding to thirty one
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  Speaker 1: point five percent operating margin and thirty five percent free
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  Speaker 1: cash flow margin for third quarter, specifically, subscription revenue between
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  Speaker 1: three point nine seven five dollars and three point nine
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  Speaker 1: eight zero billion dollars roughly twenty percent constant currency growth
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  Speaker 1: with CRPO growth also guided at twenty percent.
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  Speaker 2: So, stepping back, what's the takeaway for investors? Service now
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  Speaker 2: is leaning hard into a narrative that they're not just
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  Speaker 2: an AI beneficiary, but the governance and control layer that
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  Speaker 2: makes enterprise AI usable and secure. The cybersecurity pivot via
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  Speaker 2: ARMIS and Visa is still early days, but the growth
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  Speaker 2: rate they're claiming there is notable, and the core it
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  Speaker 2: ISSIM and ITO and business, the bread and butter, is
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  Speaker 2: still growing nicely and pulling through the newer AI products.
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  Speaker 1: The renewal rate stayed at a best in class ninety
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  Speaker 1: eight percent, which tells you customer attention isn't being disrupted
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  Speaker 1: by any of this expansion, and they now have six
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  Speaker 1: hundred and fifty eight customers generating over five million dollars
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  Speaker 1: in ACV, with thirty two more crossing the twenty million
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  Speaker 1: dollar threshold. In the past year.
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  Speaker 2: Everything discussed is AI generated analysis for educational purposes. Past
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  Speaker 2: performance doesn't guarantee future results. Please to your own due diligence.
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  Speaker 1: Looking ahead to third quarter, keep an eye on whether
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  Speaker 1: that federal government pull forward normalizes as expected, and watch
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  Speaker 1: for updates on the new AI native product line. Bill teased.
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  Speaker 1: The ticketless conversational service desk experience, he said, is heading
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  Speaker 1: toward general availability soon.
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  Speaker 2: That's going to be a big one a track. If
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  Speaker 2: it lands the way they're describing it, it could open
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  Speaker 2: up a whole new pricing motion beyond their existing enterprise base.
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  Speaker 1: That's it for this breakdown of Service Now's second quarter
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  Speaker 1: twenty twenty six. Thanks for listening, and we'll catch you
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  Speaker 1: next quarter.
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  Speaker 2: Take care everyone,