s/drfeifeiSOFTWARE MARGINS•Apr 23
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ServiceNow stock drops 13% after tiny margin guidance cut
A tiny margin reset wiped out a solid quarter. ServiceNow cut full-year subscription gross margin guidance to 81.5% from 82.0% (below 82.1% expected) and the stock dropped about 13% after hours.
The rest of the print was fine: $3.77B revenue beat, subscription revenue up 22% to $3.671B, and 2026 subscription guidance raised to ~$15.7B-$15.8B. But AI is showing up as lower profitability, Q1 subscription margin at 81.5%, overall at 79.5%, and the Armis deal is set to trim operating margin by ~75 bps and free cash flow margin by ~200 bps. For ServiceNow, growth held up, margins didn't.
The rest of the print was fine: $3.77B revenue beat, subscription revenue up 22% to $3.671B, and 2026 subscription guidance raised to ~$15.7B-$15.8B. But AI is showing up as lower profitability, Q1 subscription margin at 81.5%, overall at 79.5%, and the Armis deal is set to trim operating margin by ~75 bps and free cash flow margin by ~200 bps. For ServiceNow, growth held up, margins didn't.
Timeline3
Apr 10
UBS downgraded ServiceNow, arguing AI and autonomous agents posed a bigger threat to enterprise software incumbents; the firm said ServiceNow was down more than 40% year to date.
Apr 22
ServiceNow reported Q1 2026 results: $3.77 billion revenue, $3.671 billion subscription revenue, 22.5% cRPO growth to $12.64 billion, and 25% RPO growth to $27.7 billion.
Apr 22
After the release, ServiceNow shares fell roughly 13% in extended trading as investors focused on lower gross-margin guidance and AI cost pressure.
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Apr 23