Release Date: July 22, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- ServiceNow Inc NOW reported a strong Q2 with subscription revenue growth of 23% in constant currency, exceeding the high end of their guidance.
- The company achieved a best-in-class renewal rate of 98%, highlighting the durability of customer relationships.
- ServiceNow's AI Annual Contract Value (ACV) surpassed $1 billion, with net new ACV growth accelerating sequentially by over 40% quarter over quarter.
- The company is experiencing strong demand across various workflows, with significant deals in technology, security, and CRM workflows.
- ServiceNow's strategic partnerships and AI Control Tower are driving growth in the cybersecurity sector, positioning the company as a leader in enterprise AI and cybersecurity solutions.
Negative Points
- Despite strong Q2 performance, the full-year subscription revenue guidance was only modestly raised, indicating potential conservatism or market uncertainties.
- There is short-term pressure on gross margins due to increased hyperscaler partnerships and accelerating AI adoption.
- The company faces competitive pressure in the AI and cybersecurity markets, with the need to differentiate its offerings from established players.
- ServiceNow's pricing strategy, which includes a hybrid model of license and usage, may face challenges in maintaining customer satisfaction amidst evolving market dynamics.
- The rapid expansion in sales and marketing headcount, partly due to M&A, could impact operating margins if not managed effectively.
Q & A Highlights
Q: Can you provide insights into the Level 1 ITSM product cycle and its impact on customer spending?
A: Amit Zavery, President, Chief Product Officer, and Chief Operating Officer, explained that the Level 1 ITSM product cycle has accelerated, offering AI specialists that handle tasks end-to-end. This has led to significant productivity gains, with 40+ customers using it to resolve 80-85% of service requests without human interaction. Gina Mastantuono, President and CFO, added that AI ACV crossed $1 billion, tracking ahead of the target for AI to reach 30% of ACV by 2030.
Q: How does the strong Q2 performance in the federal sector impact future guidance?
A: Gina Mastantuono noted that the strong Q2 performance in the federal sector, particularly with on-prem revenue, was due to timing. The beat was not solely on-prem, as net new ACV was strong, allowing for a full-year guidance raise. The federal business remains strong, with a positive outlook for Q3.
Q: How does ServiceNow's pricing strategy compare to competitors, and what impact does it have on AI module pricing?
A: Amit Zavery emphasized that ServiceNow maintains a customer-friendly pricing structure, combining license and usage for predictability and flexibility. This approach ties usage to outcomes, avoiding complex metrics. Gina Mastantuono added that pricing uplift for AI native SKUs aligns with the 20-30% framework, reflecting the value delivered.
Q: What is driving the adoption of AI, and how does it impact ServiceNow's growth targets?
A: Gina Mastantuono highlighted that AI-native SKUs are making solutions more accessible, with first-time AI buyers growing over 45% year-over-year. Existing and new customers are adopting AI, with agentic AI in production growing 9x over nine months. Amit Zavery noted expanding use cases and cross-sell opportunities as key drivers.
Q: How does ServiceNow manage the tension between increased AI consumption and gross margin?
A: Gina Mastantuono explained that while there is short-term pressure on gross margins due to increased hyperscaler partnerships and AI adoption, mid-term cost efficiencies are expected. Amit Zavery added that the commoditization of large language models allows for cost optimization, ensuring margins remain stable.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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