ServiceNow Raises Its 2026 AI Target To $1.7 Billion As Quarterly Profit Falls To $277 Million
Subscription revenue grew 21% to $3,988 million, and the company lifted its free cash flow margin target to 36%.
ServiceNow, which makes cloud software that automates workflows and governs AI, raised its year-end AI annual contract value target to $1.7 billion from $1 billion at the start of the year, as third-quarter standard-accounting net income fell to $277 million from $502 million a year earlier. Subscription revenue rose 21% to $3,988 million, the company said Wednesday.
Growth up, reported profit down
Total revenue was $4,106 million, up 20.5%. Remaining performance obligations, the contracted revenue still to be recognized, reached $29.7 billion, up 22%, and the portion due within 12 months was $13.65 billion, up 20.5%.
Standard-accounting operating income slid to $385 million from $572 million. On the company's adjusted basis it rose to $1,338 million from $1,140 million, and adjusted net income was $1,039 million, or $1.00 per share, against $0.27 per share on a standard basis.
The gap between the two measures includes $633 million of stock-based pay, $198 million of amortization of purchased intangibles and $87 million of severance costs. Interest expense was $81 million, compared with $6 million a year earlier.
AI momentum and a 36% cash flow target
CFO Gina Mastantuono said AI net new contract value exceeded expectations, and that use of agentic AI in production was up more than 13x year to date. She said the company is cutting capital spending and lifting its full-year free cash flow margin target by 100 basis points, or one percentage point, to 36%.
Third-quarter free cash flow was $822 million. CEO Bill McDermott called it "the inflection point for ServiceNow as the Super Intelligence Control Tower."
The company ended the quarter with 680 customers paying more than $5 million in annual contract value, about 23% more than a year earlier. It guided fourth-quarter subscription revenue to $4,245 million to $4,255 million and full-year subscription revenue to $15,780 million to $15,790 million.
Acquisition spending and debt
Spending on business acquisitions for the first nine months was $9,167 million, against $215 million a year earlier. Goodwill stood at $10,012 million at September 30, up from $3,578 million at year-end 2025.
Long-term debt was $5,438 million and short-term debt $2,086 million, compared with $1,491 million and none at the end of 2025. Cash and equivalents fell to $2,393 million from $3,726 million.
Mastantuono is scheduled to speak at the Wells Fargo TMT Summit on December 8 and the Barclays Global Technology Conference on December 9.
