ServiceNow just pulled off something rare in corporate finance: it bought back more shares in a single quarter than it did in the entire previous year, reported better-than-expected earnings, and still watched its stock get hammered by nearly a fifth in a single session. The disconnect between operational performance and market reaction has rarely been starker.
The enterprise software giant repurchased roughly 20 million of its own shares during the first quarter of 2026, with the bulk coming from a $2 billion accelerated buyback program and another $225 million in open-market transactions. That leaves about $4.2 billion still authorized under the current program. Yet the stock closed Thursday at $84.78, down roughly 30% year-to-date and representing a one-day plunge of about 17.7% from the prior session’s close of $103.07.
Geopolitics Trumps Earnings
Revenue for the January-March period came in at roughly $3.77 billion, modestly ahead of expectations, while adjusted earnings per share of $0.97 beat estimates by a penny. Subscription revenue rose 22% to $3.67 billion. On the surface, the numbers looked solid.
The problem was in the fine print. Delayed large-scale deals in the Middle East, tied to the ongoing conflict in the region, cost the company roughly 75 basis points of subscription revenue growth in the first quarter. CFO Gina Mastantuono acknowledged to CNBC that she had baked “a bit more caution” into the full-year outlook because of the geopolitical situation and its potential to slow deal closures. The company’s guidance now reflects continued headwinds from the region for the remainder of the year.
The Armis Hangover
ServiceNow closed its acquisition of cybersecurity firm Armis on April 20, earlier than anticipated, and the integration is already weighing on margins. Mastantuono described “near-term margin headwinds” during the integration phase, with normalization not expected until 2027. The full-year operating margin guidance stands at 31.5%, burdened by 75 basis points from Armis, while subscription gross margin is targeted at 81.5% with a 25-basis-point Armis drag. To fund the deal, ServiceNow took out a $4 billion unsecured loan due in October 2026.
The GAAP gross margin fell from 79% to 75% in the quarter, reflecting integration costs from both Armis and Veza, the identity security company acquired in March. The non-GAAP operating margin improved slightly to 32%, but the market focused on the GAAP deterioration.
AI Momentum Is Real
CEO Bill McDermott offered a bright spot that might normally have dominated headlines: the company raised its 2026 AI revenue target from $1 billion to $1.5 billion. Customers spending more than $1 million annually on Now Assist products grew by over 130% year-over-year, while deals exceeding $5 million in new annual contract value jumped nearly 80%.
Should investors sell immediately? Or is it worth buying ServiceNow?
Those numbers underscore that ServiceNow’s AI bet is gaining traction, even if the market is currently fixated on the headwinds. The remaining performance obligations rose 22.5% to $12.64 billion, though analysts questioned how much of that growth was organic versus acquisition-driven.
Analyst Reactions: Mostly Bullish, But Cautious
The analyst community responded with a flurry of price-target cuts, though the majority maintained positive ratings. DA Davidson slashed its target from $220 to $190 but kept a Buy. Piper Sandler went from $200 to $140, also Buy. Citi cut from $177 to $154, Buy. BMO Capital trimmed from $120 to $115, Outperform.
The outlier was KeyBanc’s Jackson Ader, who cut his target to $85 — essentially at the stock’s current level — and maintained a Sell rating, citing the Middle East delays, weak cRPO growth, and margin pressure. His is the most bearish call on the Street and the only one that aligns closely with where the shares are trading.
The consensus stands at 39 Buy ratings, 4 Holds, and 3 Sells — a clear majority still believes in the story, but they’re waiting for proof.
What’s Next
For the second quarter, ServiceNow expects subscription revenue between $3.815 billion and $3.820 billion, representing growth of about 22.5%. Current remaining performance obligations (cRPO) growth is forecast at 19%. The critical question for investors will be whether that cRPO growth is organic or inflated by acquisition effects.
The stock recovered slightly on Friday, closing around $89 after touching an intraday low of $84.95. At its 52-week high of $211.48, the shares have lost roughly 44.6% of their value over the past year.
On May 4, ServiceNow will host its Financial Analyst Day in Las Vegas, where management is expected to lay out concrete targets for 2027 — including a roadmap for margin expansion and the timing of when AI products will transition from deployment costs to genuine usage revenue. For a company that just delivered a quarter that beat expectations but still got punished, that presentation will be the real test of management’s credibility.
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