Shares of ServiceNow came under heavy selling pressure on Thursday, 23 April, in an otherwise flat market, as investors were disappointed with the company’s growth outlook, even as its Q1 numbers were decent.
The shares opened sharply lower and extended losses in early trade, plunging 18.10% to an intraday low of $84.41, wiping out gains from the previous eight sessions.
The enterprise software provider reported first-quarter results on Wednesday that narrowly beat analysts’ expectations, but traders are fixating on a cut to its projected operating margin.
ServiceNow said earnings for the quarter ended 31 March stood at 97 cents per share, up 20% from a year earlier. Subscription revenue rose 22% to $3.67 billion in the March quarter, broadly in line with analysts’ average estimate compiled by Bloomberg.
The company noted that some deals were delayed in Europe and the Middle East amid ongoing geopolitical tensions.
The Santa Clara, California-based enterprise software maker said the growth rate would have been nearly 1 percentage point higher if not for the delayed closures of several large on-premise deals in the Middle East due to the ongoing conflict.
Leading software companies like ServiceNow are facing increasing scepticism from Wall Street about their ability to sustain growth in the AI era. While the company has launched several AI features and emphasised its strategy, it has done little to stem the sharp decline in its stock.
ServiceNow acquisitions cloud margin outlook
ServiceNow highlighted strong artificial intelligence momentum in its earnings report, but investors remain concerned about a cut in margin guidance.
The company said that its recent acquisition of Armis would negatively impact its subscription gross margin, operating margin, and free cash flow margin for 2026. It now expects a 31.5% margin on full-year adjusted operating income, compared with its earlier target of 32%.
Meanwhile, ServiceNow raised its 2026 AI annual recurring revenue (ARR) target from $1 billion to $1.5 billion. For the current quarter, it expects subscription revenue to grow about 23% to $3.82 billion.
For full-year 2026, the company updated its subscription revenue outlook to a range of $15.735 billion to $15.775 billion, implying growth of over 22%, including the impact of the Armis acquisition. ServiceNow also reported 630 customers with more than $5 million in annual contract value, up from 603 in the previous quarter.
Earlier this week, ServiceNow completed its largest-ever acquisition, purchasing cybersecurity startup Armis for $7.75 billion. The deal is expected to boost subscription revenue growth by about 1.25 percentage points this year, while compressing operating margins by around 0.75 percentage points.
ServiceNow shares drop over 47% in 2026
ServiceNow shares have retreated sharply this year, falling around 47% amid a broader sell-off in the software sector. This came after the stock had lost 28% in CY25.
Concerns over AI disruption have intensified, particularly after Anthropic introduced new tools in February to automate tasks such as marketing and data analytics.
Investor concerns are also rising around generative AI coding tools and automated assistants, and their potential impact on traditional software demand.
(With inputs from Bloomberg)
Disclaimer: We advise investors to check with certified experts before making any investment decisions.
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