Why Is ServiceNow (NOW) Down 14.1% Since Last Earnings Report?

A month has gone by since the last earnings report for ServiceNow (NOW). Shares have lost about 14.1% in that time frame, underperforming the S&P 500.Will the recent negative trend continue leading up to its next earnings release, or is ServiceNow due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.NOW Q3 Earnings Beat Estimates, Revenues Rise Y/YServiceNow reported third-quarter 2025 adjusted earnings of $4.82 per share, which beat the Zacks Consensus Estimate by 14.49% and increased 29.6% year over year. Revenues of $3.41 billion beat the consensus mark by 1.66% and increased 21.7% year over year. At constant currency (cc), revenues increased 20.5% year over year to $3.37 billion.NOW’s Q3 Top-Line DetailsSubscription revenues improved 21.5% year over year, on a reported basis, to $3.3 billion. On a cc basis, revenues increased 20.5% to $3.27 billion. Professional services and other revenues increased 31% year over year on a reported basis to $108 million and 29.5% on a cc basis to $107 million.At the end of the third quarter, the current remaining performance obligations (cRPO) were $11.35 billion, up 21% year over year on a reported basis and 20.5% on a cc basis. Remaining performance obligations, on a cc basis, rose 23% year over year to $24.3 billion.Expanding Clientele Aids NOW’s Top-Line GrowthServiceNow had 103 transactions over $1 million in net new annual contract value (ACV) in the third quarter, 6 of which were greater than $10 million in net new ACV. The company expanded its customer relationships, reaching 553 customers with more than $5 million in ACV at the end of the reported quarter. The number of customers contributing $50 million or more increased by more than 20% year over year.Technology workflows had 50 deals over $1 million, including six over $5 million. ITSM, ITOM and ITAM were all in 15 of NOW’s top 20 deals with double-digit deals over $1 million. Security and risk combined for 12 of the top 20 deals, with three deals over $1 million. CRM and industry workflows were in 14 of the top 20, with 15 deals over $1 million, and core business workflows were in 13 of the top 20, with 14 deals over $1 million. NOW saw 12 Now Assist deals over $1 million, including one over $10 million in the reported quarter. AI Control Tower deal volume more than quadrupled sequentially in the third quarter of 2025. Net new ACV in transportation and logistics industries grew more than 90% year over year, while more than 50% growth was seen in retail and hospitality and education. Net new ACV at U.S. federal business grew more than 30% on a year-over-year basis.NOW’s Operating DetailsIn the third quarter of 2025, non-GAAP gross margin was 80.9%, down 160 basis points (bps) on a year-over-year basis. Subscription gross margin was 83.2%, contracted 170 bps year over year. Professional services and other gross margins were 11.1% compared with 5.9% reported in the year-ago quarter.As a percentage of revenues, operating expenses decreased 360 bps on a year-over-year basis to 60.5%.ServiceNow’s non-GAAP operating margin expanded 230 bps on a year-over-year basis to 33.5%.NOW’s Balance Sheet & Cash FlowAs of Sept. 30, 2025, NOW had cash and cash equivalents and marketable securities of $5.41 billion compared with $6.13 billion as of June 30, 2025. Long-term marketable securities were $4.27 billion.During the reported quarter, cash from operations was $813 million compared with $716 million in the previous quarter.ServiceNow generated a free cash flow of $592 million in the reported quarter, up from $535 million reported in the prior quarter. Free cash flow margin was 17.5%, up 50 bps year over year.NOW repurchased roughly 644,000 shares. The company has approximately $2 billion remaining available for future share repurchases. NOW’s board approved a 5-for-1 stock split.NOW Offers Positive 2025 GuidanceServiceNow expects AI products’ ACV to exceed $0.5 billion this year.For 2025, NOW expects subscription revenues to be $12.835-$12.845 billion, which suggests a rise of 20.5% from 2024 on a GAAP basis and 20% on a cc basis.ServiceNow expects the non-GAAP subscription gross margin to be 83.5% and the non-GAAP operating margin to be 31%. Moreover, the free cash flow margin is expected to be 34%.For the fourth quarter of 2025, subscription revenues are projected between $3.42 billion and $3.43 billion, suggesting year-over-year growth of 19.5% on a GAAP basis and in the 17.5% to 18% on a cc basis.ServiceNow expects the non-GAAP operating margin to be 30% in the current quarter, with cRPO growth projected at 23% on a GAAP basis and 19% on a cc basis.How Have Estimates Been Moving Since Then?In the past month, investors have witnessed a downward trend in estimates revision.VGM ScoresAt this time, ServiceNow has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a score of F on the value side, putting it in the bottom 20% quintile for this investment strategy.Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.OutlookEstimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, ServiceNow has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.Performance of an Industry PlayerServiceNow belongs to the Zacks Computers - IT Services industry. Another stock from the same industry, Roper Technologies (ROP), has gained 0.6% over the past month. More than a month has passed since the company reported results for the quarter ended September 2025.Roper Technologies reported revenues of $2.02 billion in the last reported quarter, representing a year-over-year change of +14.3%. EPS of $5.14 for the same period compares with $4.62 a year ago.For the current quarter, Roper Technologies is expected to post earnings of $5.13 per share, indicating a change of +6.7% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.1% over the last 30 days.The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Roper Technologies. Also, the stock has a VGM Score of D.Radical New Technology Could Hand Investors Huge GainsQuantum Computing is the next technological revolution, and it could be even more advanced than AI.While some believed the technology was years away, it is already present and moving fast. Large hyperscalers, such as Microsoft, Google, Amazon, Oracle, and even Meta and Tesla, are scrambling to integrate quantum computing into their infrastructure.Senior Stock Strategist Kevin Cook reveals 7 carefully selected stocks poised to dominate the quantum computing landscape in his report, Beyond AI: The Quantum Leap in Computing Power.Kevin was among the early experts who recognized NVIDIA's enormous potential back in 2016. Now, he has keyed in on what could be "the next big thing" in quantum computing supremacy. Today, you have a rare chance to position your portfolio at the forefront of this opportunity.See Top Quantum Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report ServiceNow, Inc. (NOW): Free Stock Analysis Report Roper Technologies, Inc. (ROP): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks