I'll research NOW (ServiceNow) before writing the preview. Let me gather recent earnings, guidance, and market data.I have the key documents. Let me read the most recent earnings materials (2026Q1 call and release) and the year-ago 2025Q2 for context, plus get recent stock price.Let me get the year-ago Q2 2025 actuals for comparison and check recent software/tech sentiment.I now have everything I need. Here is the earnings preview.
ServiceNow enters this print as one of the most contentious large-cap software names on the tape. The company keeps beating and raising, yet the stock keeps getting sold — a disconnect that makes this quarter unusually high-stakes.
The stock action tells the story. NOW (split-adjusted for the 5-for-1 split effective December 2025) opened 2026 around $147 and has fallen to roughly $102 as of July 21 — down ~31% year-to-date, badly lagging a market that is up on the year. Most tellingly, the stock dropped ~18% the day after the Q1 print (from $103 on 4/22 to $85 on 4/23) despite a clean beat-and-raise — investors zeroed in on the fact that the full-year organic guide didn't move (the raise was essentially all Armis + FX), and on fears about the "terminal value" of seat-based software in an AI world. Shares round-tripped back to ~$135 by early June before sliding again to ~$89 in late June.
Sentiment is fragile going in. Software as a group has been under pressure, and IBM's July 14 warning dealt "another blow to the beleaguered industry," leaving investors nervous about the group despite cheap valuations. The core debate this report must address: is legacy/enterprise software budget deteriorating as spend shifts to AI and security, or is ServiceNow an AI beneficiary? Management's entire narrative is the latter — this quarter needs to prove it in the numbers, not just the rhetoric.
| Metric | Q2 FY26 Guidance | Notes |
|---|---|---|
| Subscription revenue | $3,815M – $3,820M | +22.5% YoY (GAAP); +21% to +21.5% cc. Includes ~125 bps from Armis |
| cRPO growth | +19% YoY (GAAP) / +19.5% cc | Includes ~125 bps Armis; a deceleration from Q1's 21% cc |
| Non-GAAP operating margin | 26.5% | Includes ~125 bps headwind from Armis; seasonally the lowest-margin quarter |
| Diluted shares | ~1.04B | Post-split; ASR + buybacks reducing count |
Full-year FY26 (for context on the guide-raise debate): - Subscription revenue: $15,735M – $15,775M (+20.5% to +21% cc), raised $205M at the midpoint at Q1 — but that raise was driven by the early Armis close (~125 bps) plus FX, not an organic bump. - Non-GAAP operating margin: 31.5% (Armis ~75 bps headwind), FCF margin 35% (Armis ~200 bps headwind), subscription gross margin 81.5%. - Now Assist / AI ACV target raised to ~$1.5B for 2026 (up from $1B) — Bill McDermott pre-announced this on the Q1 call, "understating" the original goal.
Year-ago comp (Q2 FY25 actuals): Subscription revenue $3,113M (+21.5% cc), cRPO $10.92B (+21.5% cc), non-GAAP operating margin 29.5%, 89 deals >$1M net-new ACV.
1. cRPO — the single most important number. cRPO is the cleanest forward-demand signal. Guidance implies +19.5% cc (~19% GAAP, roughly ~$13B), which includes ~125 bps from Armis — so organic cRPO is guided to decelerate to ~18% from Q1's 21% cc. ServiceNow has a long habit of beating its cRPO guide by ~100 bps (it did in Q1). Given how negatively the stock reacted to a "good but not accelerating" Q1, the bar is now: beat cRPO handily and show the organic figure isn't sliding. A modest in-line print likely won't be enough.
2. Does the full-year guide finally move organically? This is the crux of the bear case from Q1. Keith Weiss (Morgan Stanley) pushed directly on it: investors want to see ServiceNow participate in the AI wave with positive organic revisions, not just acquisition-fueled ones. Watch whether the FY26 subscription raise this time exceeds what Armis/FX contribute.
3. AI monetization proof points. With the Now Assist target already lifted to ~$1.5B, the market will scrutinize the trajectory — deal counts, $1M+ Now Assist customers (grew >130% YoY in Q1), attach of 3+ Now Assist products, AI Control Tower, and the new AI-native packaging (AI now bundled into every tier, with only the incremental Assist contribution counted as AI revenue). Also watch the hybrid/consumption pricing metric — 50% of net-new business came from non-seat-based pricing in Q1. This directly counters the "seat-based model is dead" bear thesis.
4. Middle East on-prem deals + US Federal. Q1 subscription growth carried a ~75 bps headwind from delayed on-prem deals in the Middle East (recognized upfront, so lumpy). Management said a couple already closed in Q2. Watch whether those slipped deals landed and whether the region stabilized — geopolitical tension in the Strait of Hormuz has re-escalated recently. US public sector was a Q1 outperformer (10 deals >$1M) and worth monitoring given federal budget noise.
5. Margins & the Armis/Veza/Moveworks integration. Q2 non-GAAP operating margin is guided to just 26.5% — a step down from 29.5% a year ago and 32% in Q1 — reflecting Armis dilution (~125 bps) plus seasonal comp/refresh grants. Management has committed the Armis margin drag goes to ~0 by year-end via "Now on Now" AI efficiencies. Watch commentary on integration progress (Moveworks → EmployeeWorks grew 5x and closed 6+ deals >$1M in Q1) and on stock-based comp, which management has pledged to drive toward single digits.
Bull case: - ServiceNow has an unbroken streak of beating the high end across all guided metrics; RPO of $27.7B growing 23.5% cc gives strong forward visibility. - Genuine AI traction: Now Assist target raised 50%, AI Control Tower deal sizes doubling QoQ, RaptorDB Pro deal volume +80% YoY, new-logo ACV +50% YoY including the largest-ever land (>$15M). - Security stack (Armis + Veza + core) is a credible new multi-billion-dollar TAM leg, and 9 of the Fortune 10 already use Armis. - Valuation has compressed meaningfully after a 30%+ YTD drawdown — a lot of skepticism is arguably priced in.
Bear case: - Organic growth is decelerating, not accelerating — cRPO guide steps down even before backing out Armis; the FY raise has been inorganic/FX-driven. - The "AI-native, bundled-into-every-tier" repackaging makes it harder to isolate clean AI ARR, inviting skepticism vs. the pure AI labs adding billions. - Structural fear that AI erodes seat-based pricing and legacy software budgets (reinforced by IBM's July 14 warning). - Near-term margin compression from acquisitions; a lot of the payoff is deferred to 2027. - Post-Q1 price action shows the market will punish anything short of a clear acceleration.
Given the stock's history this cycle, the reaction function is asymmetric and skewed hawkish:
Bottom line: ServiceNow's fundamentals remain elite (20%+ growth at scale, ~31%+ operating margins, ~35% FCF margins, Rule of 55+), but after Q1 proved that "good" isn't good enough for this stock, Q2 is fundamentally about acceleration and organic upside — not another mechanical beat-and-raise. The cRPO line and the quality/source of any full-year raise will drive the reaction more than the headline subscription number.
Note: The Financial Analyst Day (May 4) laid out the long-range plan and AI consumption "flywheel" roadmap; management commentary on this call will inevitably be benchmarked against those targets.