Thoughts on ServiceNow

I understand the drop AH, but it doesn't really worry me.

The drop is about guidance, not the quarterly results.

Q1 was strong: 22% subscription growth, 22.5% cRPO growth, beats across the board, and the 2026 AI target raised 50% to $1.5 billion.

What spooked the market is the margin guide. The $7.75 billion Armis acquisition brings headwinds this year (should be temporary), with 25 bps gross, 75 bps operating, 200 bps FCF impact.

Q2 cRPO guides to 18% versus 22% in Q1, which is probably the biggest reason for that deceleration: the ongoing conflict in the Middle East is delaying the closing of several large on-premise deals there, and the CFO wanted to be conservative, not factoring in upside if the situation were solved.

ServiceNow repurchased 20 million shares in Q1, more than double all of 2025 and I think that's warranted with a Rule of 40 of 62.7%.

More than 50% of new deals are NOT seat-based. That is one of the reasons for margin pressure. Seat-based is usually a big boost for the short term, usage based goes up over time.

That also means this could last a while. Not months, but years. We've seen this picture before with companies switching from a one-time purchase + maintenance to SaaS in the past. This is the same. Sloppy transition period, but the only right thing to do and an opportunity for those with a time horizon of at least a few years.

If you want more, see my free investment case here: