Enterprise workflow software maker ServiceNow (NYSE:NOW) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 18.6% year on year to $3.09 billion. Its non-GAAP profit of $4.05 per share was 5.6% above analysts’ consensus estimates.
Revenue: $3.09 billion vs analyst estimates of $3.08 billion (18.6% year-on-year growth, in slight beat)
cRPO (current remaining performance obligations) and RPO (remaining performance obligations) both exceeded expectations, both growing >20% year-on-year
Adjusted EPS: $4.05 vs analyst estimates of $3.83 (5.6% beat)
Adjusted Operating Income: $953 million vs analyst estimates of $928.1 million (30.9% margin, 2.7% beat)
The company provided subscription revenue guidance for the full year of $12.66 billion at the midpoint
Operating Margin: 14.6%, up from 12.8% in the same quarter last year
Free Cash Flow Margin: 47.7%, similar to the previous quarter
Annual Recurring Revenue: $12.02 billion at quarter end, up 19.1% year on year
Billings: $3 billion at quarter end, up 17% year on year
Market Capitalization: $195.6 billion
StockStory’s Take
ServiceNow’s first quarter results were shaped by increased customer adoption of AI-powered workflow solutions across its portfolio, with management highlighting strong demand for its Now Assist and Pro Plus offerings. CEO Bill McDermott noted that the company saw a "substantial acceleration for ServiceNow AI," pointing to a quadrupling in Pro Plus deal volume and a 33% quarter-over-quarter increase in average deal size. Additionally, large deal activity remained elevated, with 72 transactions exceeding $1 million in annual contract value, reflecting continued enterprise appetite for digital transformation initiatives despite a fluid macroeconomic environment.
Looking ahead, management’s guidance for the full year takes a cautious approach, balancing visible demand with potential geopolitical and federal spending uncertainties. CFO Gina Mastantuono emphasized that updated forecasts "reflect real-world complexity and bake in a healthy degree of conservatism," while maintaining that customer pipelines remain robust. The company is prioritizing investments in AI expansion, federal sector penetration, and integration of new acquisitions, such as Moveworks and Logic.ai, as key contributors to its growth outlook for the remainder of the year.
Key Insights from Management’s Remarks
ServiceNow’s leadership attributed first quarter performance to heightened demand for AI-driven automation and notable momentum in both established and expanding product areas. The company cited several operational and product milestones that shaped results and will influence its trajectory going forward.
AI Adoption Accelerates: Management reported a significant increase in customer uptake of Now Assist and Pro Plus AI tools, with Pro Plus deal volumes quadrupling year-over-year and average deal sizes rising by one-third quarter-over-quarter. These solutions are being adopted across a wide range of industries, including manufacturing and healthcare.
Expansion in CRM and Industry Workflows: The CRM and industry workflows segment grew rapidly, particularly in EMEA and Japan, with management highlighting over 50% net new annual contract value growth in these regions. ServiceNow’s recent acquisition of Logic.ai is expected to further boost its capabilities in sales and order management automation.
Federal Sector Outperformance: Public sector business grew over 30% year-over-year in net new annual contract value, driven by the company’s focus on government automation and modernization. Management introduced a government transformation suite and reported a strong pipeline despite federal budget uncertainties.
Broader Workflow Adoption: Large enterprises are expanding ServiceNow usage beyond technology workflows into employee, finance, and supply chain areas. For example, HR service delivery and finance/supply chain workflows grew 40% and 60% year-over-year, respectively, reflecting the platform’s broader relevance.
C-level Leadership Transition: Paul Phipps was promoted to president of global customer operations, succeeding Paul Smith, who will remain as a special adviser during the transition. Management emphasized the seamless change as part of succession planning to support long-term strategy execution.
Drivers of Future Performance
Management’s outlook for the coming quarters centers on sustained investment in AI capabilities, selective expansion into new markets, and a disciplined approach to navigating macroeconomic and sector-specific risks.
AI and Platform Investment: ServiceNow is prioritizing development and adoption of its AI-powered products, such as Now Assist and RaptorDB, which management views as central to maintaining competitive differentiation and supporting large enterprise needs.
Federal and Public Sector Opportunities: The company expects continued opportunity in government modernization, but is incorporating caution into its forecasts due to potential changes in federal budgets and procurement cycles.
Integration of Acquisitions: The successful integration of Moveworks and Logic.ai is expected to accelerate ServiceNow’s roadmap in employee self-service, enterprise search, and AI-enabled sales processes, broadening its addressable market and supporting future growth.
Top Analyst Questions
Keith Weiss (Morgan Stanley): Asked about enterprise demand and potential delays in decision-making due to macro uncertainty. CFO Gina Mastantuono stated that demand remains strong, pipelines are robust, and guidance reflects a prudent level of conservatism given current risks.
Kash Rangan (Goldman Sachs): Inquired about the impact of the Moveworks acquisition and adjustments to the sales strategy amid tariff and customer challenges. Management explained that Moveworks brings AI talent and unified user experience capabilities, enhancing ServiceNow’s roadmap and customer engagement.
Mark Murphy (JPMorgan): Probed the scope of ServiceNow’s ambitions in the CRM market. CEO Bill McDermott highlighted a differentiated approach to CRM, focusing on integrated, AI-powered platforms for sales, order management, and service.
Alex Zukin (Wolfe Research): Questioned the shift in workflow mix and whether CRM and industry workflows will continue to grow as a percentage of revenue. Management expects continued progress in these workflows and emphasized that the quarter’s mix shift was not due to pull-forward activity.
Karl Keirstead (Evercore ISI): Asked if recent macro changes would alter the seasonality of short-term backlog growth. Gina Mastantuono responded that the expected shape of renewal and backlog flows remains unchanged despite ongoing macro dynamics.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will be closely monitoring (1) the pace of customer adoption for Now Assist and other AI features, (2) the impact of federal sector procurement trends and any shifts in government budgets, and (3) integration milestones for Moveworks and Logic.ai. Progress in expanding CRM and finance/supply chain workflows, as well as updates on large enterprise deal momentum, will also be key indicators of ServiceNow’s ongoing execution.
ServiceNow currently trades at a forward price-to-sales ratio of 14.6×. Is the company at an inflection point that warrants a buy or sell? See for yourself in our free research report.
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