ServiceNow reported that postponements in finalizing several sizable government contracts in the Middle East reduced first-quarter subscription revenue growth, and the disclosure sparked a roughly 12% drop in the company’s shares in after-hours trading.
The company said subscription revenue growth took about a 75-basis-point hit because of delayed closures of several large on-premises deals in the region, attributing the timing issue to the ongoing conflict. Chief Operating Officer Amit Zavery told Reuters that the agreements are expected to close at various points throughout the year. "We don’t know when these conflicts will get sorted out, but we continue to work with these customers," he said.
ServiceNow highlighted that it, like other software vendors, faces investor scrutiny over whether artificial intelligence tools could prompt enterprise customers to automate tasks that previously relied on traditional software, potentially reducing demand for some legacy offerings. The emergence of advanced coding tools from Anthropic and OpenAI has been cited by market participants as a catalyst for recent weakness in software names, a trend some have labeled the "SaaSpocalypse."
Zavery pushed back on that narrative, saying he was not worried. He noted that more than half of the company’s new business comes from non-seat-based pricing models, where revenue is linked to platform usage rather than individual user licenses.
ServiceNow also flagged near-term financial effects tied to its acquisition of cybersecurity firm Armis for $7.75 billion. The company said that the purchase may create fiscal 2026 headwinds - trimming free cash flow margin by about 200 basis points for the year - and reducing operating margin by roughly 125 basis points in the second quarter.
Operationally, ServiceNow said it closed 16 deals in the first quarter that each exceeded $5 million in annualized value. CEO Bill McDermott told analysts on a post-earnings call that customers had not pressured the company to lower prices on its core products, even as some clients increased spending on AI solutions.
For fiscal 2026, ServiceNow raised its subscription revenue outlook to a range of $15.74 billion to $15.78 billion, up from a prior projection of $15.53 billion to $15.57 billion. For the second quarter, the company forecast subscription revenue of $3.815 billion to $3.820 billion, a figure that exceeded analysts’ average estimate of $3.75 billion based on LSEG-compiled data.
Actual first-quarter results showed revenue of $3.77 billion and adjusted earnings per share of $0.97, beating consensus estimates of $3.74 billion in revenue and $0.96 in adjusted EPS.
Context for markets and customers
The combination of delayed government contract closures in the Middle East and investor anxiety about AI-driven changes to enterprise software demand has created short-term pressure on ServiceNow’s stock despite quarterly results that beat expectations and an upward revision to full-year subscription revenue guidance.
Management’s comments emphasize two themes it sees as stabilizing the business: the timing of deal closures that should resolve across the year, and a shift in pricing toward usage-based models that the company says now represent more than half of new business.